umbertino Posted October 2, 2014 Report Share Posted October 2, 2014 Judge rules US Treasury has the right to claim all profits of housing giants as they march towards certain death Heidi Moore in New York theguardian.com, Wednesday 1 October 2014 13.26 EDT A trio of billionaire hedge fund managers lost their quixotic lawsuit against the federal government for its $187bn bailout of housing giants Fannie Mae and Freddie Mac. US district judge Royce Lamberth dismissed the case by Perry Capital, Fairholme Funds and Arrowood Indemnity Co on Tuesday. The three hedge funds had sued the US government for taking the profits and dividends of Fannie Mae and Freddie Mac into Treasury coffers, leaving none for other shareholders. The judge sided with the government, saying that the Treasury was allowed under the terms of the bailout to claim the profits for its own. The hedge funds believed they should get a share of those profits. In an interview earlier this year, Bruce Berkowitz of Fairholme encouraged Fannie and Freddie to defy the government and pay dividends directly to shareholders like him. “In my recent note to the directors, I’m trying to remind them who they work for,” Berkowitz said in an interview with Bloomberg. Fairholme owns roughly $60m of Fannie Mae stock through its mutual funds, according to the most recent federal filings. Fairholme is also deeply invested in Fannie and Freddie – the two stocks make up 15% of its mutual fund portfolio, according to a federal filing in May. The government, in turn, believes it should get the profits as a way to recoup the $187bn in taxpayer money spent on two bailouts. Fairholme said it is disappointed at the decision and will “vigorously pursue the enforcement of existing contractual claims”. It is not yet clear what that may imply. The decision has spooked other shareholders in Fannie Mae and Freddie Mac – who would naturally be sympathetic to the hedge funds’ case rather than the government’s. The stocks of Fannie and Freddie, which are traded on the over-the-counter, were down sharply at the open. Earlier this year, Berkowitz praised Fannie and Freddie in lavish terms – a stance rather contrary to the prevailing belief that Fannie and Freddie will be wound down and dismantled within a few years. “We believe that the two companies may be the most important financial institutions in the United States – perhaps the world – and directly support housing affordability and accessibility, including the uniquely American 30-year fixed-rate mortgage,” wrote Berkowitz in the filing. “They are a major reason why our country did not enter a second Great Depression, and are proving to be the most successful taxpayer investments of the Great Recession.” Still, Fairholme cut its stake in Fannie Mae sharply at the same time in May. The timing coincided with several housing reform proposals which promised to wind down Fannie and Freddie. That month, Johnson-Crapo proposal for housing reform was sent to the Senate. That proposal, despised by Republicans and free-market advocates, would wind down Fannie and Freddie. There are also three other pending proposals for housing reform: the Corker-Warner bill, the Protecting American Taxpayers and Homeowners Act and the FHA Solvency Act of 2013. The dispute between the billionaires and the government started not when Fannie and Freddie needed a bailout in 2008, but later, when the struggling mortgage giants started to right themselves and make significant profits in 2012. In 2008, the US government placed the two housing giants in conservatorship, essentially making them wards of the state. That arrangement meant that from 2008 to 2012, Fannie and Freddie paid $46bn in dividends to the Treasury, as part of an agreement after the bailouts that the housing giants would pay a 10% dividend on the government’s stake. In 2012, the Treasury changed the terms, commanding Fannie and Freddie to turn over all of their profits to the government. The Treasury’s terms are steep. Its dividend and profit payments from Fannie and Freddie means other shareholders receive almost no return on their investment. The reason for the Treasury’s sudden switch in terms was an intensified deathwatch over Fannie and Freddie. That same year, the congressional drumbeat urged winding down the two housing giants, and prospects for their survival were grim. With the clock ticking on the existence of Fannie and Freddie, the Treasury acted fast to recoup its money by commandeering their profits and ordering them to reduce their investment in mortgage securities faster. Two years later, the prospects for the survival of Fannie and Freddie are much improved. The reasons, however, are not particularly encouraging, say analysts. In April, analysts at Keefe Bruyette & Woods wrote: “We have come to realize how much opposition exists to replacing the GSEs with a new mortgage system. The two companies are not beloved in Washington and have not rehabilitated their political standing, but the sense of inertia is clearer to us today than it has been in the past.” “Inertia is a powerful ally of Fannie Mae and Freddie Mac. The longer Congress avoids acting on mortgage finance legislation, the greater the chances the two companies survive. As we look forward, we think it is increasingly likely the debate over the mortgage finance system lasts into 2017. By then there may be no political benefit from replacing the GSEs with a new mortgage finance system,” the analysts at KBW added. Another major lawsuit against the bailouts took the spotlight this week in a New York trial around AIG. Maurice Hank Greenberg, the former chairman of AIG, sued the government arguing that the bailout of the insurer violated his rights as a private shareholder. Greenberg has complained that he emailed and called government officials to offer his help on AIG’s troubles, to no avail. US Secretary of the Treasury Hank Paulson. We’re still talking about the bailout of Fannie Mae and Freddie Mac that he helped engineer. Photograph: Tim Boyle/Getty Images Former Treasury Secretary Timothy Geithner changed the terms of the Fannie and Freddie bailouts so that the companies would turn over all profits to the government -- as the clock ticks on their continued survival. Photograph: ERIC PIERMONT/AFP/Getty Images In 2008, then-Senate Banking Chairman Christopher J. Dodd, D-Conn., and ranking member Richard C. Shelby, R-Ala., proposed reforming Fannie Mae and Freddie Mac. Six years later, Congress is still talking about potential solutions. Photograph: Scott J. Ferrell/Scott Ferrell http://www.theguardian.com/money/2014/oct/01/wall-street-billionaires-lose-lawsuit-fannie-mae-freddie-mac Link to comment Share on other sites More sharing options...
dontlop Posted October 2, 2014 Report Share Posted October 2, 2014 Why reform it Gw bush told congress a number of times it needed reformed starting in the year 2001 but the democrat congress called him stupid and claimed fanny and freddie were just fine and they were solid sound institutions Bush warned them every year till it finally collapsed Then they blamed the recession on bush It's all a matter of record The democrats constantly lie and try to cover up that record but the conservatives of America have read and seen it and the democrats refuse to turn their eyes on the record of this matter They put blinders on It was all democrat polititions that caused the entire mess 100% 3 Link to comment Share on other sites More sharing options...
DinarMillionaire Posted October 2, 2014 Report Share Posted October 2, 2014 hear! hear! dontlop...you nailed it. Plenty of proof to back you up. O'buttho was one of the highest paid Senators from Fannie and Freddie. Link to comment Share on other sites More sharing options...
rockfl9 Posted October 2, 2014 Report Share Posted October 2, 2014 I am reading Gethner's book "Stress Test". If treasury didnt take control of these funds the mortgage mess would have been a lot worse . There was laxed regulation and the Bush administration only saw the bright side of the housing boom/bubble. too much of a good thing too fast. 1 Link to comment Share on other sites More sharing options...
Nadita Posted October 2, 2014 Report Share Posted October 2, 2014 Their stocks worth only 1 - 2 dollars now Link to comment Share on other sites More sharing options...
Bunk Posted October 2, 2014 Report Share Posted October 2, 2014 Barney Frank was a culprit also,what a useless tool he was,(and still is). Link to comment Share on other sites More sharing options...
Jim1cor13 Posted October 2, 2014 Report Share Posted October 2, 2014 (edited) It was Hank Paulson who pushed GWB into the 'bail out' corner and of course, many of these guys were ex Goldman Sachs buddies. Follow the money, the greed and the folks involved, both parties failed to act responsibly, and it has continued now for 5 years. Trillions later, who has benefited the most? It was a clever trick to paper over criminal banking and to avoid the implosion of about 700 TRILLION$ in OTC derivatives and credit default swaps held by the big bank boys. They STILL hold the same amount of OTC derivatives, the largest banks in the amount of approx. 230 TRILLION$. Here is an interesting visual: http://demonocracy.info/infographics/usa/derivatives/bank_exposure.html No way for the banks to ever cover this, so the bail out in part was also to hold a dying system together, until they can't. Edited October 2, 2014 by Jim1cor13 1 Link to comment Share on other sites More sharing options...
umbertino Posted October 2, 2014 Author Report Share Posted October 2, 2014 (edited) Quote It was Hank Paulson who pushed GWB into the 'bail out' corner and of course, many of these guys were ex Goldman Sachs buddies. End Quote There's a great documentary on this and the crisis ..Can't remember the title..It's really good... Edited October 2, 2014 by umbertino Link to comment Share on other sites More sharing options...
rockfl9 Posted October 2, 2014 Report Share Posted October 2, 2014 Read "stress Test" by Tim Gethner,.. A good isight to international banking and credit. Link to comment Share on other sites More sharing options...
gymrat76541 Posted October 2, 2014 Report Share Posted October 2, 2014 There is no end to the GREED that has taken hold of America! These individuals should be behind bars but since they have $$$$ they are exempt from the laws that govern the common citizen! Link to comment Share on other sites More sharing options...
Recommended Posts