Tim, I just want to point out something about the third amendment sweep. Many people refer the the actual agreement as illegal, but it is the right of the main creditor to change the terms of the loan. In this case, the creditor is the UST, and the term changed was to receive an unspecified cash payment instead of a fixed interest rate payment. This is not illegal until the government receives more than they lent + interest. We are now in a grey area as to whether we reached the value of the loan plus interest, but soon there will be no doubt that a “taking” has occurred. This is why Lambert can claim, at least for another month or two, that the claim was not ripe for taking. Although I think Lambert is wrong, since ripeness can be argued that the intention to do something can hurt current prices (e.g. fnma is not trading as if the economic rights are suspended, and this hurts current holders) and not just when a company is in receivership. Additionally, Lambert’s response kept arguing that since a 4th amendment is possible, we cannot say for certain that shareholders have been cheated. TLDR: Sweep is not illegal until amount is easily understood as in excess of loan and expected interest payments. Be patient and keep the faith.
Sorry, one more thing that is very relevant. While the sweep may not technically be illegal, yet, it is illegal for the FHFA to act as an agent of the government and not consider the 200+ page HERA law that specifically stated the FHFA must protect and conserve shareholder rights. So in Sweeney’s court, if it can be proved that the FHFA acted as a agent of the treasury, then the agreement itself is illegal. This is a different point than the one I made above.
I respectfully disagree. When the UST announced the Sweep they said is was part of a wind down. “Treasury Department Announces Further Steps to Expedite Wind Down of Fannie Mae and Freddie Mac” as stated on the Treasury.gov website:
Its completely botched, but the government is picking hairs. For a moment lets put aside the wind down part (which is another legal point and not whether a creditor can change loan terms). Remember the government structured the sweep that way because they couldn’t find a way to take all income for themselves another way. They could not take share or change their security because that would have been considered a purchase of a new security, for which the powers to do so expired years earlier. All I’m saying is on the third amendment sweep, it is within the power of the largest power to change the terms of a loan to protect itself (essentially making it even more super senior and pretending there was a need to do so because of made up financial projections). But it was not illegal for them to do so. Now to the sweep, the sweep is still a agreement to change the terms of a loan, not a new security, so therefore it is still a loan. That is why Lambert said the claim is not ripe and why he can cling to a narrow definition of “ripe”, especially in combination with his defense that the government can still enact a 4th amendment and therefore how is the court to say that other claimholders have been harmed. When the loan and all potential calculations of interest are repaid, and the goverment reaps a profit/reward at the expense of other holders, that is where you are now getting into wether or not this is taking, it is (or will be very soon depending on calculation. … My second point was to say, legally, from a different legal avenue that can nock out the 3rd amendment, is that if the FHFA was breaking the law by not protecting shareholders, then it can be thrown out. If it can be shown that the FHFA acted at the direction of the UST, then it can be easily shown that the FHFA acted illegally and not in the spirit of HERA which instructed it to conserve and protect assets, and then the agreement that benefits the UST as expense of others is illegal. I don’t think we will ever hear those words, but the closer we come to those words, the closer we come to a settlement. Tick Tock
Also there is another legal way for shareholders to be vindicated. If Judge Wheeler in the AIG trial rules that the government cannot demand equity in exchange for a loan, this would set a great precedent that Sweeney can quote to even throw out all 80% of warrant. Judge Wheeler and Sweeney are both in claims court, Lambert is in district court (I believe). Expect a written decision by Wheeler in Q1 2015
thanks shareholder, wheelers upcoming decision will give precedent. the timing wow . Sweeney’s end of discovery & depositions and the wheeler decision. Early spring will be very busy
Blogger shareholder and other sat holders,
Under HERA, FHFA as conservator through (its director )has the sole legal authority and can not be influenced nor act as agent for another government authority (US Treasury. This was the whole point of the plaintiff in the sala of Judge Sweeney that the Treasury and FHFA acted illegally on the 2012 3rd Sweep Amendment. In fact this was confirmed by the letter( publish in this blog) of Geithner to DiMarco sometime July 2012 that Geithner agree that DiMarco has the sole legal authority when DiMarco refuses Geithner’s request for GSE to help the distressed borrower.Then sometime Aug 2012 , DeMarco agreed on the Geithner initiative to the 3rd Sweep Amendment because the whole intention of the Sweep is to not share any profit to the shareholders( dec 2010 us treasury memo as published in this blog) .Pls. Take not that DiMarco’ s position is to wind down GSE and with profit sweep in perpetuity GSE will not be able to recapitalize.
Above is also the whole reason that judge Lambert erred in declaring that the sweep is not ripe for taking. Pls do not believe that technically the sweep is not illegal because in Judge Lambert ruling he was citing Hera provision that support his ruling without taking into consideration the other provision that will contradict his ruling based on context? The appeal court will see this very clearly and Fairholme will hopefully win the appeal.
We have all our opinion but we should stick with “Truth”. Above claims hopefully in the discovery process that will show the 2012 Sweep Amendment is illegal. Remember in the discovery process motion hearing, Judge Sweeney would like to know if another government agency has influenced FHFA on the 2012 Sweep amendment. Her comment is in the transcript which is published as well in this blog and part of the public document.
In Summary, I believe the Sweep is illegal because of the motive( not to share profit to shareholders by treasury and DiMarco agreeing because of his hatred on GSE and seeing that it will prevent GSE to recapitalize, contrary to preserve the GSE assets as conservator. ) and under Hera no other government agency (Treasury) can legal authority on FHFA.
Sorry, let me clarify. Its not classified as illegal yet, because that hasn’t been ruled by a judge. For now, there is legal precedent for changing loan terms, thats what the government is arguing, and that is what lambert is arguing. So I am saying on that one point the change of the loan term isn’t classified as illegal. The process by which it was done, the inevitable result of not having access to profits (Lambert said 4th amendment possible to remedy so he didn’t wan to rule), the economic damage to the shares from the governments intention to wind down (which depress current stock value and make the claim “ripe” right now (or thats what fairholme is trying to prove. So they need to prove these things, all lambert ruled was on the most narrowest definition of the term loan and the ability to change terms without considering effects of current policy and how they change things in perpetuity.
So, your interpretation of Judge Lambert’s decision is something like…”if I steal your car (3rd Amendment) I haven’t acted illegally because technically I can return it at any time (4th Amendment).”
I don’t know what you are disagreeing with or agreeing with. I am just sharing my research that is very specific to the major legal distinction the government has hid behind for 2 years, one that was unable to be challenged due to the fact that the government had previously lent more than it received.
Did you read the above post? You are not thinking about this like the lawyers are arguing, whether its right or not that is just what they are doing. There is a reason in the Amicus brief that Common Suit’s Lawyers say that a stay is in appropriate and it is because it is saying that Lamberts decision is regarding loans. Preffered shares are loans. The Amicus brief on the Common’s Suit is saying that while they disagree with the fact that a judge issued a decision on the loans the company took out, the Common’s will need to resolve its claim in court. It says Sweeney already granted discovery for the same reason that still need to be resolved (Is the FHFA the Treasury for the purpose of this court), so it is not saving the court any time or resources by staying discovery so lets not wait to open up the same suit from a different claimant who is the equity owner and therefore his claims are already ripe.
Thank you for the Clarification. Most shareholders are upset about the third amendment but it’s still important to distinguish between lawful and unlawful. You did a fine job of doing that.
Its not necessarily a right, but there is precedent. Creditors can change covenants and restrict your cash flow. The government keeps hiding behind extraordinary circumstances rhetoric and has a patchwork defense that doesn’t stand up under scrutiny. It helps that the total amount paid back is at a surplus to loan value and now things are ripe for litigation.
Tim, I just want to point out something about the third amendment sweep. Many people refer the the actual agreement as illegal, but it is the right of the main creditor to change the terms of the loan. In this case, the creditor is the UST, and the term changed was to receive an unspecified cash payment instead of a fixed interest rate payment. This is not illegal until the government receives more than they lent + interest. We are now in a grey area as to whether we reached the value of the loan plus interest, but soon there will be no doubt that a “taking” has occurred. This is why Lambert can claim, at least for another month or two, that the claim was not ripe for taking. Although I think Lambert is wrong, since ripeness can be argued that the intention to do something can hurt current prices (e.g. fnma is not trading as if the economic rights are suspended, and this hurts current holders) and not just when a company is in receivership. Additionally, Lambert’s response kept arguing that since a 4th amendment is possible, we cannot say for certain that shareholders have been cheated. TLDR: Sweep is not illegal until amount is easily understood as in excess of loan and expected interest payments. Be patient and keep the faith.
REPLY
Shareholdersaid:
November 25, 2014 at 12:42 pm
Sorry, one more thing that is very relevant. While the sweep may not technically be illegal,
yet, it is illegal for the FHFA to act as an agent of the government and not consider the 200+ page HERA law that specifically stated the FHFA must protect and conserve shareholder rights.
So in Sweeney’s court, if it can be proved that the FHFA acted as a agent of the treasury, then the agreement itself is illegal.
This is a different point than the one I made above.
Tim, I just want to point out something about the third amendment sweep. Many people refer the the actual agreement as illegal, but it is the right of the main creditor to change the terms of the loan. In this case, the creditor is the UST, and the term changed was to receive an unspecified cash payment instead of a fixed interest rate payment. This is not illegal until the government receives more than they lent + interest. We are now in a grey area as to whether we reached the value of the loan plus interest, but soon there will be no doubt that a “taking” has occurred. This is why Lambert can claim, at least for another month or two, that the claim was not ripe for taking. Although I think Lambert is wrong, since ripeness can be argued that the intention to do something can hurt current prices (e.g. fnma is not trading as if the economic rights are suspended, and this hurts current holders) and not just when a company is in receivership. Additionally, Lambert’s response kept arguing that since a 4th amendment is possible, we cannot say for certain that shareholders have been cheated. TLDR: Sweep is not illegal until amount is easily understood as in excess of loan and expected interest payments. Be patient and keep the faith.
Sorry, one more thing that is very relevant. While the sweep may not technically be illegal, yet, it is illegal for the FHFA to act as an agent of the government and not consider the 200+ page HERA law that specifically stated the FHFA must protect and conserve shareholder rights. So in Sweeney’s court, if it can be proved that the FHFA acted as a agent of the treasury, then the agreement itself is illegal. This is a different point than the one I made above.
I respectfully disagree. When the UST announced the Sweep they said is was part of a wind down. “Treasury Department Announces Further Steps to Expedite Wind Down of Fannie Mae and Freddie Mac” as stated on the Treasury.gov website:
http://www.treasury.gov/press-center/press-releases/Pages/tg1684.aspx
In your post you state: “This is not illegal until the government receives more than they lent + interest.”
The problem with the Sweep is the payments are all interest though euphemistically called “dividends.” There is no way to pay back the “loan.”
No one is trying to protect and conserve!
It’s a botched, illegal take-over of private companies.
“Shareholder” Appears to be a Treasury Shareholder.
Its completely botched, but the government is picking hairs. For a moment lets put aside the wind down part (which is another legal point and not whether a creditor can change loan terms). Remember the government structured the sweep that way because they couldn’t find a way to take all income for themselves another way. They could not take share or change their security because that would have been considered a purchase of a new security, for which the powers to do so expired years earlier. All I’m saying is on the third amendment sweep, it is within the power of the largest power to change the terms of a loan to protect itself (essentially making it even more super senior and pretending there was a need to do so because of made up financial projections). But it was not illegal for them to do so. Now to the sweep, the sweep is still a agreement to change the terms of a loan, not a new security, so therefore it is still a loan. That is why Lambert said the claim is not ripe and why he can cling to a narrow definition of “ripe”, especially in combination with his defense that the government can still enact a 4th amendment and therefore how is the court to say that other claimholders have been harmed. When the loan and all potential calculations of interest are repaid, and the goverment reaps a profit/reward at the expense of other holders, that is where you are now getting into wether or not this is taking, it is (or will be very soon depending on calculation. … My second point was to say, legally, from a different legal avenue that can nock out the 3rd amendment, is that if the FHFA was breaking the law by not protecting shareholders, then it can be thrown out. If it can be shown that the FHFA acted at the direction of the UST, then it can be easily shown that the FHFA acted illegally and not in the spirit of HERA which instructed it to conserve and protect assets, and then the agreement that benefits the UST as expense of others is illegal. I don’t think we will ever hear those words, but the closer we come to those words, the closer we come to a settlement. Tick Tock
Also there is another legal way for shareholders to be vindicated. If Judge Wheeler in the AIG trial rules that the government cannot demand equity in exchange for a loan, this would set a great precedent that Sweeney can quote to even throw out all 80% of warrant. Judge Wheeler and Sweeney are both in claims court, Lambert is in district court (I believe). Expect a written decision by Wheeler in Q1 2015
thanks shareholder, wheelers upcoming decision will give precedent. the timing wow . Sweeney’s end of discovery & depositions and the wheeler decision. Early spring will be very busy
Blogger shareholder and other sat holders,
Under HERA, FHFA as conservator through (its director )has the sole legal authority and can not be influenced nor act as agent for another government authority (US Treasury. This was the whole point of the plaintiff in the sala of Judge Sweeney that the Treasury and FHFA acted illegally on the 2012 3rd Sweep Amendment. In fact this was confirmed by the letter( publish in this blog) of Geithner to DiMarco sometime July 2012 that Geithner agree that DiMarco has the sole legal authority when DiMarco refuses Geithner’s request for GSE to help the distressed borrower.Then sometime Aug 2012 , DeMarco agreed on the Geithner initiative to the 3rd Sweep Amendment because the whole intention of the Sweep is to not share any profit to the shareholders( dec 2010 us treasury memo as published in this blog) .Pls. Take not that DiMarco’ s position is to wind down GSE and with profit sweep in perpetuity GSE will not be able to recapitalize.
Above is also the whole reason that judge Lambert erred in declaring that the sweep is not ripe for taking. Pls do not believe that technically the sweep is not illegal because in Judge Lambert ruling he was citing Hera provision that support his ruling without taking into consideration the other provision that will contradict his ruling based on context? The appeal court will see this very clearly and Fairholme will hopefully win the appeal.
We have all our opinion but we should stick with “Truth”. Above claims hopefully in the discovery process that will show the 2012 Sweep Amendment is illegal. Remember in the discovery process motion hearing, Judge Sweeney would like to know if another government agency has influenced FHFA on the 2012 Sweep amendment. Her comment is in the transcript which is published as well in this blog and part of the public document.
In Summary, I believe the Sweep is illegal because of the motive( not to share profit to shareholders by treasury and DiMarco agreeing because of his hatred on GSE and seeing that it will prevent GSE to recapitalize, contrary to preserve the GSE assets as conservator. ) and under Hera no other government agency (Treasury) can legal authority on FHFA.
Sorry, let me clarify. Its not classified as illegal yet, because that hasn’t been ruled by a judge. For now, there is legal precedent for changing loan terms, thats what the government is arguing, and that is what lambert is arguing. So I am saying on that one point the change of the loan term isn’t classified as illegal. The process by which it was done, the inevitable result of not having access to profits (Lambert said 4th amendment possible to remedy so he didn’t wan to rule), the economic damage to the shares from the governments intention to wind down (which depress current stock value and make the claim “ripe” right now (or thats what fairholme is trying to prove. So they need to prove these things, all lambert ruled was on the most narrowest definition of the term loan and the ability to change terms without considering effects of current policy and how they change things in perpetuity.
so are you saying that Lambert cherry picked to justify his dismissal,,
So, your interpretation of Judge Lambert’s decision is something like…”if I steal your car (3rd Amendment) I haven’t acted illegally because technically I can return it at any time (4th Amendment).”
I’ll just respectfully agree to disagree.
I don’t know what you are disagreeing with or agreeing with. I am just sharing my research that is very specific to the major legal distinction the government has hid behind for 2 years, one that was unable to be challenged due to the fact that the government had previously lent more than it received.
Did you read the above post? You are not thinking about this like the lawyers are arguing, whether its right or not that is just what they are doing. There is a reason in the Amicus brief that Common Suit’s Lawyers say that a stay is in appropriate and it is because it is saying that Lamberts decision is regarding loans. Preffered shares are loans. The Amicus brief on the Common’s Suit is saying that while they disagree with the fact that a judge issued a decision on the loans the company took out, the Common’s will need to resolve its claim in court. It says Sweeney already granted discovery for the same reason that still need to be resolved (Is the FHFA the Treasury for the purpose of this court), so it is not saving the court any time or resources by staying discovery so lets not wait to open up the same suit from a different claimant who is the equity owner and therefore his claims are already ripe.
Thank you for the Clarification. Most shareholders are upset about the third amendment but it’s still important to distinguish between lawful and unlawful. You did a fine job of doing that.
NM you took the words out of my mouth. Great breakdown from “shareholder”!
Shareholder,
Where do you get the notion that it is the right of any creditor, whether large or small, to unilaterally change the terms of a loan?
It’s an absurd statement. Only the government would try to claim that it could arrogate this right to itself.
Nick
Its not necessarily a right, but there is precedent. Creditors can change covenants and restrict your cash flow. The government keeps hiding behind extraordinary circumstances rhetoric and has a patchwork defense that doesn’t stand up under scrutiny. It helps that the total amount paid back is at a surplus to loan value and now things are ripe for litigation.
EDIT 1:
$FNMA Simon says
Posted on November 25, 2014 by admin — No Comments ?
http://www.glenbradford.com/2014/11/fnma-simon-says/
Shareholdersaid: November 25, 2014 at 12:39 pm
Tim, I just want to point out something about the third amendment sweep. Many people refer the the actual agreement as illegal, but it is the right of the main creditor to change the terms of the loan. In this case, the creditor is the UST, and the term changed was to receive an unspecified cash payment instead of a fixed interest rate payment. This is not illegal until the government receives more than they lent + interest. We are now in a grey area as to whether we reached the value of the loan plus interest, but soon there will be no doubt that a “taking” has occurred. This is why Lambert can claim, at least for another month or two, that the claim was not ripe for taking. Although I think Lambert is wrong, since ripeness can be argued that the intention to do something can hurt current prices (e.g. fnma is not trading as if the economic rights are suspended, and this hurts current holders) and not just when a company is in receivership. Additionally, Lambert’s response kept arguing that since a 4th amendment is possible, we cannot say for certain that shareholders have been cheated. TLDR: Sweep is not illegal until amount is easily understood as in excess of loan and expected interest payments. Be patient and keep the faith.
REPLY
Shareholdersaid:
November 25, 2014 at 12:42 pm
Sorry, one more thing that is very relevant. While the sweep may not technically be illegal,
yet, it is illegal for the FHFA to act as an agent of the government and not consider the 200+ page HERA law that specifically stated the FHFA must protect and conserve shareholder rights.
So in Sweeney’s court, if it can be proved that the FHFA acted as a agent of the treasury, then the agreement itself is illegal.
This is a different point than the one I made above.