Comments on: When hedge funds lobby A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: Krasting Sat, 15 Mar 2014 12:07:32 +0000 Felix has it wrong. He thinks hedge funds are the big winners if F/F survive. Actually it is the US tax payers that stand to see a big win if F/F are allowed to live.

If the Senate plan becomes law:

1) The taxpayers take an immediate loss of $189 Billion. (the senior preferred stock)

2) Taxpayers will lose the ‘upside’ of the 80% stake that they own in F/F. (I estimate this to be at least $100B – Dick Bove thinks it is $300B)

3) The US mortgage market will suffer under the Senate plan:

A – Say ‘good bye’ to the 30 year mortgage.

B – Be prepared for much higher % rates and a stiff pre-payment penalty on all new mortgages.

So under the ‘Felix’ plan taxpayers will drop about $400B – about the cost of the military for a year. This comes to $2600 for every worker in the country.

Great plan Felix…….

By: y2kurtus Thu, 13 Mar 2014 08:39:33 +0000 Fannie and Freddie could have been treated more like Wachovia or Bear-Stearn’s if that’s what the government wanted. The equity could have been zeroed out and the shares canceled and declared worthless when they were both illiquid and insolvent… That is not what happened.

Now the GSE’s are neither illiquid nor insolvent and I don’t see how the branch of government who the founders envisioned to adjudicate a dispute between citizens and their government, (the courts) can allow the government to continue as they are. This is the mess you end up with when you deal in half measures…. “oh gse debt is a “moral obligation” …what does that mean is it full faith and credit? “No.. not exactly… but…but their really safe… we stood buy them when we had too.” People who use half measures, half truths, and fancy talk get the outcomes they deserve and this is one.

Best hopes for housing reform… I like the idea of a fully gov guaranteed first mortgage up to 100,000 and indexed to inflation once and for-all. That gives the lower and middle class a nice boost getting into the market and it’s still iceing on the cake for higer income folks. After that 100k first lien base it should be all private capital.

p.s. no position… but Herbalife sure looks like a pretty dubious business to me.

By: fourcentson1 Wed, 12 Mar 2014 19:59:51 +0000 A few thoughts.

1) FnF have not been nationalized. This isn’t Argentina, Cuba, or Russia.

2) FnF were reformed in 2008-2009 with FHFA as the regulator and conservator. FnF’s new book of business is sold. There could be another systemic shock 20 years from now, but so what. We can deal with that responsibly when the time comes.

3) FnF are “affected with the public interest” like utilities, and banks, and other regulated firm, but that doesn’t mean that they need to be replaced with a post office type entity. And why would that be better for taxpayers, homeowners, and society generally?

4) Tsy (on behalf of taxpayers) can exercise the warrants to own FnF to own almost 80% of FnF and thereby maintain control after ownership ends. Why not do that? It’s good for taxpayers as FnF have a lot of value now and doesn’t require a taking without just compensation.

5) There are 20 or so takings cases going on, brought by Ted Olson, D. Boeis, Chuck Cooper, all of whom have a lot of experience arguing before SCOTUS. It may need to go all the way there.

6. Preferreds are different from commons. Preferreds were “tier one” capital that community banks were encouraged to invest in. They just get a noncumulative different. Lot different from commons, which get the residual after other claims are paid off.

By: jwnoble3 Wed, 12 Mar 2014 19:55:53 +0000 Mr. Simon,

Regarding Fannie and Freddie, your op-ed only looks at the hedge fund investment here to strengthen your argument. In fact, many investors of GSE preferred shares are mutual funds and private citizens. Should they be wiped out after the taxpayers have been repaid all that has been borrowed?

By: FinanceBear Wed, 12 Mar 2014 01:04:19 +0000 I read the excellent NY Times article. What I wondered was, who wrote the short?

The short must be written by an investment bank, which is not in the business of losing money and is sophisticated.

The downside of the short is that Herbalife will be worthless if Ackman succeeds. So they loan Ackman $1 billion in stock and he pays it back at zero (e.g., a billion dollar loss).

Finance theory says that you take the $1 billion and discount it back by the interest rate for the period of time you expect and that is the cost of the short. However, if the short costs this much, Ackman will never make any money. So it would be interesting to know the terms of this contract and who wrote it.

Obviously I’m not taking into account the upside, where Herbalife goes up and Ackerman has to pay back the short, with interest, at the higher rate. So you can add another discount for this possibility. But the short should still be really expensive since there’s a significant chance that Ackman will drive Herbalife into bankrupcy.