The Fannie Freddie Document Treasure Trove

July 19, 2017 marked the release of the first set of much-awaited government documents that addressed the government knew and when, before the implementation of its net worth sweep on August 17, 2012, which gave the government all profits from the operation of those two Government Sponsored Entities (GSEs) Fannie Mae and Freddie Mac.  That deal was embodied in the Third Amendment to the original Senior Preferred Stock Purchase Agreements (SPSPAs) of September 2008.  Analytically, these documents are irrelevant: the case against the government is air tight without them. Practically, these documents should transform all phases of this complex litigation.  The best way to beat the government in litigation is to show its bad faith throughout.  It is important to see why both the propositions are true, and how they impact on the ongoing litigation.  I am offering this analysis, in my capacity as an advisor to institutional investors.

The Analytics.  A close look at the disclosed documents tell us nothing about the net worth sweep that is not apparent on the face of the published agreement that the Federal Housing Finance Authority (FHFA) and the Department of Treasury used to put the Net Worth Sweep (NWS) in place. These were expert lawyers and they meant what they said and said what they meant—namely, that the sole purpose of the deal was to make sure that all the future profits generated by Fannie and Freddie would end up in the pockets of the United States Treasury above and beyond the 10 percent dividend set in the original 2008 agreement.  It would have been, of course, imprudent for the two government agencies to announce their intention to collude publicly, so they engaged in a planned, but sham, transaction, that made it appear as if their joint action was the salvation of Fannie and Freddie.  The supposed benefit was that the enterprises were relieved of any obligation to pay money to Treasury when they did not have money to pay it.

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