video: https://www.youtube.com/watch?v=V54XNM7V23E
morning everybody
uh happy new year um to most of you i
haven’t
spoken to um we’re still
getting some people that are coming in
here
at the tail end and so as they
enter the room i’ve got to mute them and
admit them at the same time so if you
see me a little distracted for a few
minutes that’s because
everyone is there’s still people coming
in
so i can see a few of your faces like
gloria osteen give me a thumbs up if you
can hear me okay
can you hear me good all right
well again happy new year um i wanted to
[Music]
take the time to give you an update
on the letter agreements that the
treasury
issued on january 14th last thursday
now that we’ve had a little bit of time
to dissect them they’re very complicated
agreements and yet at the same time
they’re very simple
and we’re going to you know try and
break them down and give you some
perspective
on what they mean at this point and how
it’s going to affect both the timeline
of fannie and freddie
recapitalization and release and
at the same time um
what it will do um you know to
to the share price action which is you
know what we’re
most important what what is most
important to all of us
so let me start out by talking about
the litigation i’m going to go through
the litigation i’m going to go through
the capital requirements
i’m going to go through the retention
and i’m going to go through
the government’s interest in fannie and
freddie
following this letter agreement so the
first thing i’m going to talk about is
litigation
on december 9th the supreme court heard
oral argument
in the collins case and there were two
issues in that case the first was the
constitutionality
of the federal housing finance
administrator the appointment
and removal of that individual
the supreme court um
was very aggressive with that argument
the government
interestingly enough didn’t through the
justice department
they didn’t attempt to even defend
the constitutionality of
the federal housing finance
administration the way it was
set up and the key argument was
the president didn’t have the ability to
remove
that individual except for some very
very significant
reasons with cause as you’ve heard me
say many times
before the supreme court or the
government
through the legislature has always
attempted to create this
fourth rail of government we were set up
with a balance of power structure
the legislative the judicial and then
the executive branch of government and
congress has
always attempted one way or another
to try and rule from the grave or
set up rules set up agencies set up
regulations
that can’t be changed going off into the
future
and that is a constitutional issue
that’s exactly
what was addressed because the executive
branch of government
should have had the ability to
remove the executive director
of the federal housing finance
administration
for cause for any reason at any time
and they attempted to tie his hands in
the way the
housing and economic recovery act was
structured the second
issue in front of the court was the
administrative procedures act
did the government violate the
administrative procedures act
as the same as being the
single creditor of fannie and freddie
in cahoots with the federal housing
finance administration
did they violate the apa when
they directed 100 of the earnings and
profits of the corporations to the
government
in perpetuity that was the most
important issue
from our standpoint because we believe
that the government is going to lose on
the constitutionality claim
prospectively going forward we believe
the president will have a removal
authority
of the federal housing finance
administrator the issue
is the the most important issue in front
of the court
was did they violate
their authority did they exceed their
authority by taking 100
of the earnings and profits of the
corporation well
i listened to the oral argument and i
have to admit a few people here hold on
welcome to the four people that just
came in
um we’re just talking about the
litigation right now
and i was just about to start with the
administrative procedures act and in
the legality of the government taking
100 of the earnings and profits of the
corporation of fannie and freddie and
the impact that that would have
and not to my surprise
but david thompson did a brilliant job
and the court was concerned very
concerned
and in the most liberal and the most
conservative members of the court
weighed in on this justice breyer who
we’d all
agree is one of the more liberal members
of the court he used the words
nationalization
three times justice sotomayor
had the same concerns there was
much discussion about that
and in the um
unenviable position of anyone that’s
ever appearing before
the united states supreme court
governments for the lawyers or the
lawyers for the government
under the apa claim had to
answer a series of questions by judge
gorsuch
and it was in sequence well
your honor we agree with disagree with
you on this point
but and we disagree with you on this
point we disagree with you on this point
however if all of that is true yes we
will lose this case
and and so that’s a that’s a terrible
position to be
in um for those of us that of us that
have followed this closely
um it was a bad showing for the
government
it was a great showing for david
thompson in fact
i spoke to him before i did the
appearance on fox news with maria
barto-roma
on december 22nd and
he was still in hawaii recovering you
know it’s
a very very stressful thing to
appear before the united states supreme
court take on the government
no less but he was very very confident
about the position that they were in
with the apa claims
so that is a it was a big factor
in in all of this subsequent to that
on december 15th in the lamberth case
and the lambert case is in the dc
circuit
and judge lamberth if you recall in
september of 2014
he dismissed the litigation
against the government based upon
the government’s representation that
fannie and freddie were in a death
spiral
that they were hopelessly bankrupt and
because of that taking 100
of the earnings and profits of the
corporation was profit was
was proper well and they did it on the
basis of an affidavit by the net by the
an individual at treasury his name was
mario eugletti
nobody seems to see much of mario
eugletti these days because
as we know now that was a false
affidavit it was a materially false
statement call it perjury
call it fraud on the part of the
government
but it was false and that was the basis
upon which judge lambert dismissed that
case
and judge lamberth is a very respected
jurist he’s
very respected in all of his
um you know by his peers
and as a result
many of these cases were dismissed in a
domino
effect based upon his ruling
in that case well in the u.s court of
claims
where the government has
jurisdiction over admitting people here
where the government has jurisdiction
over
takings under the constitution
judge sweeney allowed for a limited
amount of discovery
it was an error on the part of the
government that allowed her to
order some discovery and during that
discovery
we learned through the deposition of the
chief financial officer
of fannie mae at the time susan
mcfarland
that she had just briefed the government
not only were they not
bankrupt but they were entering a huge
age of profitability they had solved
their problems the financial crisis was
over
and they were going to have to write up
billions of dollars of assets that they
had written down
and in addition to her testimony
um the government had an outside auditor
grant thornton they were present and
they memorialized everything that susan
mcfarlane said to the treasury
on their work documents and those work
documents were part of the discovery
as well so without question
the government entered into an agreement
to take a hundred percent of the
earnings and profits of the corporation
in violation of hera
and contrary to what they had
represented to a federal judge
they lied to a federal judge and i want
you all to understand that the
significance of that
lying to a federal judge because in my
conversations with david thompson
who is also the lead attorney on that
case
and anyone that has ever practiced law
at a certain point in time the trial
record has to be certified before it
goes
goes forward who is going to certify a
false statement
that has been made to
a federal judge prior
to a trial and prior to an assessment of
damages and that’s
where both collins is on a remand for
damages if the supreme court upholds the
fifth circuit
and that’s where we are right now in the
lambreth case in the 8th circuit
where we’re headed towards trial so on
december 15th
there were 9 800 documents
56 000 pages of information
that the treasury turned over as part of
the discovery
they objected to having to turn over
that information
judge lamberth ruled against them and
unlike
previous cases where they attempted
to appeal the ruling on a motion to
compel
on either an interlocutory appeal or a
motion to reconsider
the government just said okay and they
turned them over
and they turned over and it was very
similar to what they did in collins
where they didn’t even question and show
up to
to to argue the constitutionality
of the appointment of the federal
housing finance administrator
in fact the supreme court
hired an amicus lawyer you know a friend
of the court
to argue the position that the
government
would not argue on behalf of themselves
so you can see this litigation
is far more serious
than what we thought up to this point
and sometimes
your success could be a hindrance and
when i close out with my remarks today i
want you
to to remember that because
i think the litigation has worked in our
favor
um and when i conclude you’ll see why as
i put together the different pieces of
this
one of the things that is permeates the
letter agreement
and i’m putting all of this up on the
website so you can
read the letter agreements for both
fannie mae and freddie mac
you can read the fifth circuit you can
get you can
go back and listen to these oral
arguments that i’m
telling you about but but one of the
things that
that rings through these letter
agreements
is that as part of
the recapitalization and release
and the exit of conservatorship of
fannie and freddie
these lawsuits have to be settled
well i remember i’ve been in this
long enough to remember when howard kane
at arnold and porter mocked
the shareholders for the litigation
that they brought and said that they had
no standing to bring the litigation
and we’ve been to the supreme court
we’ve discovered that there’s fraud on
the part of the government
i actually stood in front of
the the a federal judge
in delaware as a plaintiff
on the the uh the issue of whether or
not we had
access to the books and records and that
judge
denied it and i remember
looking at howard kane and the the eight
lawyers
that they had you know at the the
government’s table
and i thought to myself this truly is
david and goliath
bringing this fight to the federal
government
so but we’ll we’ll close out with that
the next section that i want to talk
about that’s in this letter agreement
that you can go back and read
is that this whole issue the capital
requirements
and why is that important what does that
mean
well the capital that
a financial institution has
is the buffer between
what is lost and ultimately what happens
if the federal government has to come in
and bail out a financial institution
and that has been something that we have
redefined
since 2008 with the end of the financial
crisis
all financial institutions have to have
more capital
they have to demonstrate that they have
more capital on an annual basis
before a bank like bank of america or jp
morgan
or citigroup before they can increase
the dividend
before they can do a share buyback they
have to get the blessing of the federal
reserve
on an annual basis where they prove out
that they have adequate capital
to meet a stress test with the stress
test is essentially
a simulation of what happens
if we end up in another financial crisis
and how much capital they have in
reserves
before they become insolvent so the
capital requirements of fannie and
freddie
have gone through two years of intense
scrutiny
and formulation by mark calabria
who is the head of the federal housing
finance administrator
administration mark calabria and michael
creminger
wrote hera when
creminger was general counsel for the
fdic
and calabria was chief of staff for
senator shelby when senator shelby
was chairman of the banking committee so
there’s
no one more qualified to do that
than mark calabria and mark calabria
put a very very high bar
on the capital requirements he wanted
bank like
capital four percent capital ratio
which is essentially the same capital
ratio that jp morgan and the rest of
them
have to have that was a source of much
much controversy you know can they
generate a return on equity
can they attract shareholders is it
really
necessary to have the same amount of
capital
for fannie mae and freddie mac as jp
morgan or citibank or bank of america
after all
they only do one thing they securitize
mortgages
and they have a unique business model
that’s different than the rest of them
but that being said
that’s where the capital rule ended up
at four percent and there was a lot of
chatter about whether or not they would
be able to attract capital and be
successful
exiting conservatorship one of the
things they did in this letter ruling
was they reduced the capital requirement
to three percent
from four percent
based upon their ability to exit
conservatorship and what they’ve allowed
what they are allowing them to do
is to exit conservatorship with far less
capital
25 less capital over 25 percent less
capital
and they’ll allow them to build to that
four percent
based upon retained earnings at the same
time they pay out dividends
well that’s a very sensible approach and
remember this is a new factor that i’ll
enter into this
jp morgan and morgan stanley are the
financial advisors they are
helping them raise capital to exit
conservatorship
and so the treasury acknowledged that
yes it will help us exit conservatorship
faster if we um
don’t have to raise as much capital it
is less dilutive
retained earnings does not dilute
shareholders
new capital dilute shareholders
so the fact that they have to raise
significantly less capital
to exit conservatorship was a very very
positive development
no one you know thought about
the next thing that i want to recover
or what i want to cover has to do with
capital retention and in this letter
agreement
they have made a change they have said
that 100 of the earnings and profits of
fannie mae
and freddie mac will be
retained by the entities
that’s amazing because that it wasn’t
until september of 19
that they were even allowed to retain
capital now they and they put a
threshold on it they were bumping up
against that threshold
now they get to retain 100
of their capital there’s a catch to it
the catch to it is it shows as an asset
on their liability on their
balance sheet but there’s an offsetting
liability
and this is the liquidation preference
so every dollar a capital
that they retain
they have a lot of adding somebody here
every dollar capital that they retain
they have to add uh a dollar that they
owe the government
now that sounds
really kind of screwy until you
analyze and you go beneath the surface
and you try to understand
treasury’s position for that and here’s
the
analogy that i’ll give you that i think
everybody can kind of understand
everybody has sold a home before
or known somebody that sold a home and
if there’s a mortgage on that home
and you have a buyer and a seller
and the buyer says i want to take
possession of that home
and the seller says fine
and they allow the buyer into the home
but the buyer hasn’t paid for the home
yet
does the seller release the mortgage
on that home at the same time they give
them possession
of the home and the ownership of the
home
no they don’t and so what has to happen
and we will close with this what has to
happen
is simultaneously
as there’s an agreement that ends the
litigation
and there’s agreement on the capital and
the capital structure and how it’s going
to be priced
that liquidation preference will be
written down
based upon the retained earnings
and the courts jumping back for a minute
the courts are going to write down that
litigation
preference because if they
rule that fannie mae and freddie mac
were unjustly burdened by
the third amendment sweep then
the money’s paid back and the government
actually owes those
entities some some additional funds
so we’ll go forward now and i want to
you know bring this um
to the next point which is
the government’s ownership stake so in
addition to advancing
money to fannie and freddie at 10
interest that now stands still stands at
approximately 192 billion dollars
the government can exercise warrants
equal to 79.6
of the outstanding common stock
those warrants as part of an agreement
for recapitalization
and release they have to be exercised
so they can’t sit back and allow those
warrants just to fester
they have to be negotiated
into recapitalization and release
and so what that does is whatever the
government’s interest
is as of recapitalization and release
it will be front and center and everyone
will understand
what it is um so you’ve got
four elements of this agreement that are
[Music]
all geared towards recapitalization and
release and the exit of conservatorship
and when you go to the website
and you look at these letter agreements
and you
look at section 9 and section 9
is the last
section of this very very complicated
agreement
and i’m just going to read it to you the
the
heading on this
section 9 in boldface
is this commitment to develop a proposal
to resolve conservatorship
so the treasury is saying
that they are committed to
um
they’re committed they’re absolutely
committed
to exiting conservatorship
and then let me read you what is
underneath that it says
in order to ensure a path for treasury
to resolve its investment in the
enterprise
in a manner that fairly compensates
taxpayers
for the support that they have provided
and continue to provide
treasury in consultation with the agency
have begun to work to establish a
timeline
and process to terminate the
conservatorship
and raise capital including identifying
any necessary legislation for reform of
the enterprise
and an analysis of the appropriate
number of guaranteed
guarantors including whether there
should be
one or multiple guarantors
in order to facilitate
the exit from conservatorship treasury
and the enterprise commit to work to
restructure treasury’s investment
and dividend amount in a manner
in a manner that facilitates
the orderly exit from conservatorship
ensures treasury is appropriately
compensated
and permits the enterprise to raise
third party capital and make
distributions
as appropriate treasury in consultation
with the agency
should endeavor to transmit a proposal
that details this work to both
houses of congress on or before
september 30th 2021.
so we have less than a nine-month window
where the treasury in this letter
agreement is fully committed
to having visibility for a plan
that will allow these entities to raise
capital
and exit conservatorship um
now there’s as you can imagine
there’s a lot of chatter um in the
background
about all of this and washington dc
is not a place where secrets are kept
very well
um and a lot of people pay a lot of
money
to get as close to people as they can to
get those secrets and then those secrets
get kind of disseminated and they get
twisted around it’s like that game that
we used to play
as a kid you know where you’d write out
a paragraph
on how to build the box the first person
would read it and then they would turn
to the second person
and they would tell them what the
instructions were to read the box
to build the box and by the time
those instructions had been passed to 20
people
and the last person in the chain recited
the instructions on how to build the box
how close to what the 20th person said
was it to the first person and the
actual instructions that were given
a lot of it gets messed up
in translation and that’s one of the
things i think
that has happened here you know they
if we look at
what has happened and i look at
my interaction i’ve always felt like
with this issue and the people that have
been involved with this issue i have
always felt like
the litigation was going to be the
driving force
in this and on my part it was a little
naive to think that anybody
including mnuchin would take on
the tough political
of saying that the government has been
paid back
in fact after this agreement this will
show you how washington works
after this agreement was written
maxine waters and it was released after
the market
about five o’clock on thursday january
14.
about 10 30 or 11 o’clock
maxine waters who’s head of the senate
bank or the house banking committee
finance committee
she released a statement criticizing
the letters from the letter agreements
as
benefiting exclusively benefiting a
group of hedge funds and unduly
benefiting
the shareholders um and it was it was
kind of a vicious letter
and then sherrod brown who’s on the
senate banking committee
did the same thing well
they hadn’t even read the letter
agreement
they don’t understand the issue i am
very very confident of that because i’ve
been before both of them
um and and so you have this confusion
that was created by all of that
when i said it was naive on my part it
was naive on my part to think
that anybody would have the courage to
just come forward and say
we messed up and we’ve been paid back
that message has been communicated to
treasury secretary yellen and
what i discounted as
as excited as i was about the success
of david thompson and the release of
this information
in the litigation as excited as i was
about that
i failed to consider
the position that the government was in
they now have to protect the taxpayers
and they’ve been unburdened of doing of
taking on the tough political challenge
of saying this money’s been paid back
because the court’s going to do it for
them and they know they’re going to lose
and that’s why for the first time in
these two letter agreements
they made as a condition that all the
litigation be settled
except for one piece of litigation that
is a direct claim
against the government and it cannot
exceed four five billion dollars
and it’s ironic i’m very familiar with
that piece of litigation
it challenges the actual conservatorship
itself
and the claim there is four and a half
billion dollars
so the government for the first time has
actually considered that in fact if you
go back
to the late fall of 2019
porter has handled this litigation and
they’ve been billing the government over
20 million dollars a year
and i know that didn’t sit well
with the current director the federal
housing finance administration
it didn’t sit well with treasury they
went outside
and they hired they got a request for
proposal
they hired a law firm by the name of
milbank
huge firm and milbank actually
acted as a as an independent
legal advisor to the treasury to help
them evaluate
their position in the litigation because
they were losing they had just lost in
the fifth circuit
and on bach hearing in the fifth circuit
and they were headed to the supreme
court
and the united states supreme court is
very unlikely to overturn
and on by kyrie of a prior court all
they would do
more than likely is clarify that
and so they even hired an independent
outside advisor
and so how did all of that get into that
agreement
they’re concerned about the litigation
they understand
that it would be very difficult to turn
this
back to the companies
have them raise money and settle the
litigation at the same time so they’ve
added that as another condition
but as i’ve told you and i just read it
you know it’s right here it is number
nine
on both of the letter agreements the
language is exactly the same
the government is committed to having
these
entities exit conservatorship
so that becomes a question the question
then becomes
what are we going to get what is the
value of our shares what is it going to
be
and that depends on
a number of things as i’ve told you
the most secure position to be in
is to be a preferred shareholder the
preferreds have either a 25 or a 50
par value because of the litigation in
judge
lambert’s court we have tremendous
leverage on a damaged model
that david thompson publicly in a press
conference i did with him
in january february time frame of 2019
he said it’s 12
a share and rising based upon
post-judgment interest and the trial
in judge lambert’s court
is focuses singularly
on the issue of the contract rights of
preferred shareholders
so as we go through as they go through
these negotiations
the preferred shareholders have
tremendous leverage
in how this big piece of pie
is going to be split up
and there will be a negotiation between
the shareholders that have
a vested interest in this and the
shareholders that are providing new
capital
well one of the interesting things about
the capital structure and who owns what
at this point is the number
of existing shareholders that will be
the source of additional capital and
i’ll give the example of two
all of this is public information
under the investment company act of 1940
every shareholder has to release
their holdings and what they’ve bought
and what they’ve sold
on a quarterly basis so when you
look at the number of different
preferred
issues and there’s dozens of them we own
maybe eight or nine
you can see who the largest shareholder
is under the large under the investment
company act
of 1940. well two of the largest
shareholders
are the nation’s largest pension fund
tiaa-cref
and capital research and management
which manages the american funds
that that’s the parent company that
manages the american funds
they were original shareholders of
fannie mae and freddie mac
no one understands this issue
better than them um
and so it becomes very difficult
for them to be a source of new capital
if they’re not being treated well
on their existing shares so i think that
there’s going to be
a lot of demand i i don’t worry at all
about whether or not they’ll be able to
raise the money
in the current environment that we’re in
there is a need for companies with real
earnings
and real profits you’ll see in my
year-end letter that’s going out today
um
that you know we poke a lot of holes in
what is going on right now it is
very reminiscent of 2000 it’s a time to
be
focused on value and i’ll close with two
things
first um
you know following a financial crisis of
2008 and we
recovered very very well um
but i didn’t like the drawdown i didn’t
like the fact that we got hit
and and i i’ve spent a little bit of
time and every waking day
thinking about how do i protect
you how do i protect myself
from that point in time where all of a
sudden
everybody realizes that tesla
is so overvalued
that it’s going to crash how do i
protect you
against the inevitability of what
happens in a bubble
like february of 2000 when nasdaq
lost 82 percent of its value over the
next 10 years
how do i communicate to you
that with any company no matter how much
you like it
the valuation of that company is the
most important
single factor in your long-term success
and what your entry point
is in that valuation you still don’t
believe me even though i tell you
snap-on tools has performed better than
microsoft
in the last 20 years and i can give you
examples of a lot of companies
it’s still hard to believe that warren
buffett despite the fact
that he generated a two percent return
for shareholders of berkshire hathaway
in a 16
market last year that he has done
significantly better
than the s p 500 his entire career and
in the last 20 years
it’s hard to communicate that but that
is the challenge and so as
we look at that i’m trying to find ways
of creating non-correlating assets
meaning
when the market goes down we’ve got
things that are going to go up
i addressed that without even knowing
what i was doing essentially
in 2000 when i owned genesco
and i remember taking the heat over that
but i thought it was a great company
with great earnings with upside
and when genesco went from two to fifty
dollars while microsoft
went down and all the other tech stocks
went down like sun microsystems losing
98
of its value that created
the opportunity for success because we
had something we could sell that was
going up that we could reinvest into
things that were going down it is that
simple and so fannie mae and freddie mac
they have become that non-correlating
asset
and about the time that we get this
settled
we will have an asset that will be going
up
i believe at the same time other things
that are going down
um and that will help protect us
and during a period like this
you take a lot of heat for it because
as i said in my hearing letter it’s
real easy to watch it’s very difficult
to watch your neighbors get rich
and whether or not that’s real wealth or
not time will tell
and so finally i want to read something
to you i got this from
a credit analyst that does a lot of
trading um for a large company
and he sees who’s buying and who’s
selling um
and and he he wrote down some bullet
points that i think
are very appropriate when we look at
fannie and freddie he said
number one you’re looking at pricing as
security of a company in reorganization
well inherently that creates
uncertainty and so despite the fact that
these have par
value of 25 and 50 dollars
they’re going to trade based upon that
uncertainty until
you move towards more and more certainty
the security is very liquid with both
institutional
and retail following in other words
for one reason another people will enter
and exit a security
and there is liquidity for that
but the rewards are going to come
at the point in time where the
uncertainty
the reorganization everything is settled
um the security is a hundred percent
covered from a value standpoint
the value of the entity is well in
excess
of our claim on the capital structure
with the preferred securities
there are 33 billion dollars at face
value
that’s a rounding error in organizations
that have six trillion dollars worth of
assets
and 35 to 45 billion dollars of
annual pre-tax profits when run properly
the next one the u.s government has an
option to purchase
80 percent of the entity for one dollar
that’s not going to impact the value of
our shares
it’s not unless it impacts common it
does not
impact preferred the pedigree of smart
money invested in the security
is like best of show in westminster
tia cref capital group
some of the smartest hedge fund managers
in the world in others
the entity itself is necessary for
national economic health we have to have
a strong housing market
you know and as i told maria barto-roma
on december 22nd
know fannie mae and subsequently freddie
mac years ago
they were so the solutions to help the
george baileys of the world
fight off the mr potters in
the building and loans in the movie it’s
a wonderful life
these businesses are not impacted
by technological obsolescence
they don’t have heavy research and
development expense
once they are they exit conservatorship
they essentially are fully capitalized
and the only capital retention
requirements that they will have for the
ordinary course of obsolescence in the
business
just like any business technology
furniture people
and they’ll retain capital to get to
that four percent capital allocation
the entity provides a service to rich
and poor alike
but it’s more but is more important to
the less wealthy
in other words the success of these
entities
go more towards moderate income
in in middle america and others
the as i told maria the
largest loan that you can get on fannie
five hundred and twelve thousand dollars
the average loan is less than half of
that
and there are people that are routinely
paying a hundred thousand dollars for a
car now
that will be technologically obsolete
and will be headed to the rust pile in
six or seven years
the business is easy to understand
and should be easy to value by
institutional investors
once these roadblocks once the treasury
complies with
their stated intent in as they move
forward
in section 9 of the agreement
the entity has one of the most powerful
and sophisticated financial advisors
assisting them in its effort to raise
capital
that is jp morgan and morgan stanley
and as i joke many times
they get a performance fee they don’t
get paid
until they are successful the big payoff
is based upon their success
and those of you that have ever been out
riding horses
on vacation or whatever and you hop on a
trail horse
you know you get towards the end of that
ride
and those horses you’ve heard the
expression
jp morgan and morgan stanley are going
to be like trail horses headed to the
barn
because that’s when they get fed that’s
when they get
my big butt off of them and they get
water
and they have to live until you know
they get freedom until the next time
somebody doesn’t know what they’re doing
climbs on top of them
and then finally
this has drug on for over 12 years
and it’s time for it to end they’ve
established a time frame for it to end
and it is coincidental
that it’s going to happen as this
litigation comes to an end
so for all those reasons
you know i’m continuing to recommend
that we hold i think
you know one of the terrible things that
treasury did
um in all of this
is that they released this information
on thursday night
after the close of the market and
the expectations that we all had had
were that they were going to write down
the liquidation preference
and that this would be settled and as i
look back on it now that’s part of what
i mean
but it was naive the strength of
litigation
had far more impact on
this issue than anything
and there’s continuity
this will be janet yellen’s job to
finish
um and it will be done in a very very
orderly manner
the time frame actually really hasn’t
changed because
even if secretary mnuchin had done what
everybody expected him to do
we’d still be looking at nine months to
12 months and you’d still have
uncertainty about how
it it will you know was going to play
out
um one of the more interesting things
in this journey that i’ve had and being
involved with this issue
is that i sit on the committee for a
responsible federal budget and if any of
you saw
the confirmation hearings yesterday with
janet yellen
um they were kind of
they didn’t challenge her a whole lot
about the budget deficit and the
tremendous debt that we’re building up
um and but they reminded her
that she was a director of the committee
for a responsible federal budget
and what was she going to do about it
and she said well
now is not the time to do it
interest expense because rates are low
the interest expense on the budget
is the same as it was in 2008
and we’ve got to get through this crisis
first
but as part of her being a board member
and me being a member
we had an end we have an annual meeting
and in september of 2019
at our annual meeting in the cocktail
reception before the formal part of the
program
started um we were standing out on the
the top of this rooftop garden where the
event was being held
everybody was you know having a glass of
wine or whatever
and there she was and somebody had just
said
thank you and walked away i walked up
and got right in front of her
and i can tell you she came up to about
my belly button and i’m not that tall
and i sat there and and talked to her
and after the initial pleasantry she
asked me what i did for a living
i explained that to her
i asked her about fannie mae and freddie
mac i told her that i had shareholders
just like you and asked her
you know what her thoughts were about it
and i think in that conversation
you know it was very revealing she said
i’m not as familiar with the litigation
as you are but my concern
has always been the periodic commitment
fee
that the government gets for backing
these entities and the periodic
commitment fee is
what’s the government paid to have
to act as a backstop in the event that
fannie and freddie failed
as was alleged in 2008
the basis of the conservatorship and
that takes on two
that’s a two-part answer to that
question the first is the amount of
capital
that they have in front of the entities
and so that’s what director calabria
has put in place
in the financial services oversight
committee
of which the the treasury secretary
and the head of the federal reserve are
both members
they endorsed the need for capital
they endorsed bank like capital
they endorsed the plan that
treasury secretary calabria or the
fufa director calabria and treasury
secretary mnuchin
calibrated and put in front of them
back in november they got their buy-in
form for it
and so the answer to
now treasury secretary yellen’s question
and the answer that she gave me in
september of 2019
it’s been answered and there should be
no
further objections to getting these
entities
recapitalized and released within the
nine-month
time frame and then we’ll have a whole
different set of
questions and in meetings about how we
diversify
the proceeds from this long-standing
investment that we’ve had
so that concludes the
presentation that i have um
it’s too we’ve got a lot of people on
this call so it’s almost impossible
to take questions if you have specific
questions
send them to us i’ll put them up on the
website
please use the information that we’ve
got on the website
you know everybody can have an opinion
there can only be one set of facts
daniel patrick monahan said that the
first time in 1986 before
he started negotiations on the future of
social security
and i want to deal with the facts i’ll
never react to emotion
when it comes to making investments and
when it comes to reacting to investments
and i’ll take the heat
and i’m taking a little of the heat
right now but we will prevail and that
is probably the best sign
that we’re going to be successful in
this
so thank you happy new year and i look
forward to being able to deliver
a lot of positive news throughout the
year on this issue
you