That's an interesting idea. Throw in a few million and sue the crap out of everyone.

I would never even consider something like that if I had enough money to even pull that off, the idea wouldn't have crossed my mind.

It's a competitive area with 3-4 funds that specialize in it I'm sure. Basically when a company goes bankrupt there is always flotsam and jetsam floating around. There are guys who do nothing all day but look for spots where they can muscle in.

It's not investing in a 'make your money work for you' sense, but rather a very narrow niche occupied by people who make their money on a 'time for money basis'. It's not really investing if you intend to come in and shake things up yourself. (this is using my own definition of investing which basically excludes most private equity, a significant number of hedge fund deals, and other large sections of finance that I'm not looking to list)

EDIT: I would also be shocked if the primaries didn't go to law school. There are ways to make absurd amounts of money in the legal profession that don't involve working for clients.

Can you say more about the last part?

If you're super entrepreneurial a law degree can be put to very good use. Patent trolling (high end), and collections (low end) are two examples.

This is from the 2012 FHFA Report to Congress. It says they are defending against foreclosure lawsuits that alleged that they are government entities because they are in a conservatorship. That means that the more money they pay to the Treasury and the longer they are kept in conservatorship the higher the chance that claims of defendants in foreclosure will start to be seen by judges as legitimate.

If they are taking this position in a legal sense in relation to forclosures it must mean that they will either let them out of conservatorship soon or be forced to by the courts as a result of FHFA taking this position in court. Fannie Mae still has a lot of pending litigation and previously settled foreclosure litigation. The deck of liability seems to be stacking against the Treasury if they don't let them out.

The only path that doesn't result in huge liability is to let them out of conservatorship. If they don't do it systematic risk will increase and the cost to them could be enormous in relation to what they stand to profit.

Probably worth zero. But definitely a binary.

Thinking about shorting here. Not sure why higher housing prices matter for a company the govt is going to dissolve. Thoughts?

How do you plan on shorting?

Passed on it but have feeling its gonna gap down tomorrow. We'll see.

Or you can just buy the stock like I did. All these things are predictable. You can predict they are going to sue. You can estimate how often they will win.

The odds of a lawsuit prevailing in this situation are above 75 percent. Plus there are going to be multiple lawsuits. Corker/Warner will never pass because they are legally obligated to give them the option of exiting their Congressional charters and giving up their GSE status to become fully private companies. GSE status is not a controlling privledge on their assets. It is an agreement that regulates the scope of their actions in order to allow people the highest chance of being able to afford a home. In exchange for providing maximum liquidity they can borrow at interest rates in the market that are close to what the government can borrow at.

The government might want out of that agreement but the only remedy they have is to end the agreement. They can't unilaterally take the results of that agreement because they do not own them and they have not assumed their liabilities in an official way on their balance sheet.

Even if you think the price will go down shorting this stock is stupid. If you don't even know why housing prices matter then you obviously shouldn't even think about it. How can you short something you don't even know the basic details of?

Not sure why you think I don't know the basics. Also not sure how you addressed my conclusion given my premise. Please try again.

Def good thing I didn't short there though! (Yet)

You do not know why housing prices would matter. If you knew why they matter you would not short the stock. No rational person would consider shorting this stock. You can come to that conclusion just by having some common sense.

So you must have less information than common sense. Therefore you must not have absorbed either the basics or what the basics mean. I can conclude you do not have enough information to short the stock.

There is no need to be insulted. You should be thanking me.

You seem to be confused. You seem to think the chances the govt does away with Fannie (and your money) are less now because house prices have gone up. Lol.

Oh, and if that's not what you are saying then you once again should reread my small statement. You know, the day the headlines were about shutting Fannie down.

Thought it was a great long when u got in, still think it will shoot up large a few times, but thought it will also go to 1 a few times. I don't plan on riding too many of those waves. Thought the govt convo would send it down tbh, but wasn't sure which is why I passed. Still think it will see 1 and 2 (At min) a few times.

And no offense taken. Please let me know about all my trade ideas, seriously, if you feel you have something to add.

And its crazy to say no one would short this stock. If only I did it at 5. Or 3. Or 2. Your argument long doesn't change at all at either price. From here we see your strong opinion is just an opinion.

Again, please answer how you will short this? A simple explanation...

I do wish you luck, but I don't want others who are less savvy making bets on FNMA because of you. You shouldn't want them to either.

That percentage comes from where?

That doesn't make any difference. There is only one legal argument possible, which is "well, that isn't nice."

That isn't true. It isn't the GSE status that matters here. It is the senior preferred share agreement that matters and it is air tight and the spirit and letter of it calls for the unwinding of FNMA.

In general, the way people short stocks is to click on "sell short" on their broker's website and type in the stock ticker (in this case FMNA) and a number of shares.

Since this is an OTC stock, it would probably take a call to the broker and significant borrow fees.

"Well, that isn't nice" is nowhere near the bar the government must meet in order for a taking not to happen. That is why I posted links to executive orders by Bush Jr. and Ronald Reagan.

The one signed by Reagan is as close as possible to how the courts have interpreted just compensation for takings by the government. The courts will never deny that the government has the power to do what they did. In exchange for that power they have to provide compensation.

For example, let's say the government makes a decision to takeover Exxon Mobil because they want the military to have direct control over where it gets its oil from. Thousands of investors would be hurt by that decision financially. They made their investments with certain minimal expectations. One of them being that they have a right to run their business and that the risk for the business would be the ability of management to run the company well.

Let's say the stock price drops 99 percent. Is the government responsible to pay compensation? If it can it should. The courts would almost certainly agree. Now there are some situations where they wouldn't be forced to immediately pay compensation.

The time element of just compensation has a definite correlation to the context of the situation. In a time of war just compensation would still eventually be required. Only when the hindrance of the assets directly affects the ultimate ability to pay can it be delayed until that risk subsides. Like the war being over.

I know what shorting is. But he seems to think its an easy game. For a stock this volatile I would be interested in the strategy and how he sees it working. Its easy to just say "Ill short it".

No. Just no. You are dead wrong for this to be your default assumption about the future of FNMA. Could it happen? Maybe, which is why most IIT are saying "probably worth nothing but..."


Compensation? Unlike your example and all past history, the govt wasn't overrunning a company for its own means. Fannie was dead. And not just dead like most things die. A nuclear decaying death. Just Google how bad it was and what was avoided by the takeover.

FNMA doesn't "deserve" anything from the govt. There is no precident for this and congress could/probably will/definitely should step in even if courts see it your way. Shareholders didn't lose $$ BC of govt. Maybe they should have let the economy crash just to avoid this thread.

Again, I bet it remains volatile in the mean time. Hopefully we can catch the wave. Gl.

But then to go so far to say no one would short FNMA is laughable.

I'll tell you when I do it. I literally have no idea where you get your opinions about how easy I think it is. I said "may go short" and "think it will gap downtomorrow"

Enough of this. Lets talk about something that matters. Strategy: short high, cover low. Pray.

Those have nothing to do with the conservatorship agreement. The gov't stepped in because FNMA was completely insolvent.

They actually don't have to do anything. They did not seize the shares of FNMA. FNMA sold them senior preferred notes in return for the conservatorship agreement. FNMA did this willingly because the alternative for FNMA was to close its doors.

The government took nothing. They made an agreement with FNMA to purchase senior preferred shares.

That is a red herring. They did nothing of the sort.

That has never happened in history. Not once, not ever. There is no legal precedence or law in place for the government paying stock holders compensation for a company that has negative book value.

You do realize that FNMA has negative book value, right? Each share is worth negative $12.89 (as of the end of last quarter). That is the just and legal compensation per share if the government were to declare eminent domain.

This is also a red herring. The conservatorship was put in place because the alternative was bankruptcy with shareholders getting (based on how ALL bankruptcies are required to be done) absolutely nothing.

***
What can be argued in court is that the senior preferred share / conservatorship agreement was too onerous. The other chance you have is that congress decides to end the conservatorship and sell the senior preferred shares back to FNMA in return for regular preferred shares or common shares.

If that happens you are left with your shares of a company that has negative book value, but has some chance of digging itself out of its hole over time.

You are looking at each action they took in a vacuum. They put them in a conservatorship with a defined set of goals. If the terms of that conservatorship are deemed to be onerous because they resulted in a lower chance of survival the justification and intention for putting them into the conservatorship in the first place becomes far more able to be challenged.

The intention of the thing is supposed to be for them to exit it. A 10 percent interest rate for a company with their credit rating will probably be seen to show an intention beyond saving them.

The truth is that they never were given a chance to borrow the money more cheaply when they could have. They never had the option to let themselves be liquidated. The government overstepped its position and essentially gave them only one choice.

But that was five years ago. It is obvious now that the company is going to survive. The modifications of the agreement since the initiation of the conservatorship were done without board approval. The shareholders still have no power here even though the company is solvent.

So Congress can pass legislation to 'wind down' 'liquidate' or however they want to frame. The only question a judge needs to answer is 'would they have been able to survive if they weren't liquidated'. The rapid repayment of money to the government makes it obvious that the question is yes.

The only option they have is to end the conservatorship and revoke their congressional charters. Unless they want to pay 100's of billions of dollars they have to let the shareholders have full use of their property pretty soon.

The Gov't only took the following actions: They put FNMA under conservatorship (which it is legally allowed to do), bought a crap load of senior preferred shares from FNMA, and lent it a crap load of money.

I've already mentioned the onerous thing as one of your hopes. We'll see, but the chance of a successful lawsuit is pretty small (it will be granted class-action status, so there will only be one lawsuit). If it were larger, the share price would reflect that.

That wasn't the intention. The stated intention was to keep FNMA afloat until it could be unwound.

They went to the government because no one would lend them the money, not the other way around.

FNMA stated recently that it thinks there is a reasonable likelihood that it will be able to pay back the taxpayers dividends equal to or greater than what the taxpayers gave it over the next 10 years as long as housing and the economy continue to grow reasonably and without any hiccups.

You do realize that no court is going to favor common stock shareholders over taxpayers, right?

That is factually untrue.

They currently owe $15,468,000,000 more than what their assets are worth (at par value - impossible to liquidate at that value so I am being nice with that figure) to bond holders (including the feds), $1,000,000,000 in senior preferred shares that would need to be bought back from the gov't, and $22,214,996,880 worth of junior preferred shares (par value - they get paid before common stock holders).

Here is the important part (which I am amusingly burying in the middle): FNMA is only profitable because they aren't paying the rates they are supposed to be paying the junior preferred stock. FNMA is, in fact, not paying them at all (haven't been for years) and the junior preferred shareholders get paid in full before the common shareholders see a penny no matter what (its the law!!!).

The shareholder value per share is negative $12.87 minus what they owe the junior preferred shareholders. It is a very negative number. Luckily, in the US we don't put common shareholders on the line for that amount. They just get zero if they are owed negative money.