In yet another bizarre turn of events, John Carney WSJ shared the following minutes from an FASAB meeting in October 2008.
• Federal Troubled Asset Relief Program Status Report
Mr. Allen suggested that aspects of this arrangement go beyond a bank receivership arrangement. Mr. Reid noted that the FDIC values the assets and liabilities of failed banks and books a reserve for the difference—the FDIC’s expected loss due to insurance. Over time, the bank is liquidated and the reserves adjusted. Mr. Werfel clarified that receiverships lead to liquidation while conservatorships do not. Mr. Reid agreed and noted that his point was that the banks are not consolidated but the liability for losses are recognized by FDIC.
Mr. Werfel explained that the control elements of a conservatorship are intended to put the institution back on its feet—not to liquidate it. The conservatorship would be terminated when the institution is on sound footing. However, the financial transaction— the exchange of preferred stock and warrants for the guarantee—complicate matters.
Mr. Werfel indicated that the intent at this time is that the control is intended to be temporary and the FASAB, FASB and GASB literature provide that temporary control should not lead to consolidation. The intent of Treasury is not to exercise the warrants that provide 79.9% ownership. The purpose of the warrants was to drive the stock price down to next to nothing. When the government steps in to aid a publicly traded entity it does not invite fair trading. The Treasury wished to freeze the market for this stock and the warrant accomplished that goal. They have no voting interest and only own an option to own the entities.
Further examination of more FASAB minutes by Glen Bradford turned up this startling exchange:
Mr. Reid responded by suggesting that the immediate issue faced by the Board is what the estimate of the government’s maximum (financial) exposure is. To this end, he noted that the GSE’s have not estimated this exposure (on an accrual basis) and since the maximum exposure has not been incurred on a cash-basis method, it is yet to be determined if the $200 B is sufficient. Mr. Reid further noted that the decision regarding the nature of the conservatorship is an administrative question and will be based on certain circumstances not yet known. Mr. Reid reminded the Board that the government owning the preferred stock with punitive dividend terms provides incentive for the GSE’s to work its issues out as expeditiously as possible. Furthermore, by design, the warrants were issued not to take ownership but rather to devalue the common stock.
Mr. Allen asked whether or not in an economic sense the government exercised the warrants. Mr. Reid explained that the government does not need to exercise the warrants to enter into conservatorship and that there is no economic reason to exercise the warrants since its rights are statutory in nature. Mr. Dacey concurred with this explanation as well as stating that the government has separate rights apart from the warrants.
Mr. Werfel then explained that it is important to understand the government’s intention. The intention was not to eliminate the ownership interests but to prevent current shareholder speculation resulting in speculators taking advantage of government intervention at the expense of others. Driving the stock market value to zero prevents this manipulation from happening. Further, timing is important since on September 7 when the conservatorship took affect the stated policy and intention was, and continues to be, that the conservatorship is temporary. There are published statements from the Secretary of the Treasury that the goal is to get the GSE’s back to a stable fiscal position so that they can go forward operating as they were operating before the conservatorship. Since this is in fact the case, the OMB concern was that by consolidating the GSE financials, we are not only in conflict with the stated policy but the financial statements would be misleading. If conditions in fact change, then another decision will need to be made. This will require continual monitoring over time as circumstances change.
Mr. Jackson asked if the common stock was now worthless from an Internal Revenue Service point of view and Mr. Werfel stated that the shares are now down below a dollar and were trading close to about $6.00 at the time of the conservatorships’ announcement. OMB estimated that the exercise price for the warrants was approximately $640,000.00.
The truth is blasting to the surface now! Please continue searching these documents for more bomb shells.
What made Johns revelation even more odd was that it came soon after he literally mimicked one of his failed arguments from back in February. In February, he wrote: http://www.wsj.com/articles/the-real-state-of-fannie-maes-potential-heard-on-the-street-1424461388 and today he rehashed the same argument here: http://blogs.wsj.com/moneybeat/2015/05/05/freddie-macs-reality-show/ I let John now that failed arguments do not get any better with the passage of time.Since he copied and pasted Februarys article today, I simply copy and pasted my February rebuttal: “To debate this rationally you must credit the billions illegally seized to paying down the principal. #cherrypick” It is outrageous to claim that the current earnings would not cover the ten percent dividend based on the 2012 dividend amount.
In light of his disclosure regarding FASAB we have agreed to go easy on him regarding the retread but we did respectfully ask that he come up with some new material in the future.
Senator Corker could not contain himself any longer and confirmed that the reason for the recent Republican double cross was indeed the fact that they know now that Fannie and Freddie aren’t going anywhere.
“FHFA appears ready and willing to unilaterally drive the GSEs back to the failed model of private gains and public losses. If Congress doesn’t act to reform our housing finance system, it will be blessing FHFA’s push to recreate the failed pre-conservatorship model.”
I would love to comment further on Director Watts recent moves, but that would not be productive, I’ll let our opponents continue to try in vain to decipher our strategies.
On the subject of the Republican double-cross, it was reported today that Senator Grassley will be posting news on his site concerning his inquiry to the Justice department.For those of you who may be new here you can catch up on the double cross here: https://timhoward717.com/2015/04/07/senator-grassley-emerges-from-30-month-coma-to-realize-3rd-amendment-sweep-is-lawless-no-coincidences/
The following is the DOJ response concerning that fact that they did not turn the latest Goldstein memo over in the “Perry Injunction”:
“Internal pre-decisional and deliberative documents are not part of the court’s record in a case challenging administrative action.”
Trevor Thompsen has put together a crushing rebuttal to the DOJ response:
“I can’t believe the DoJ actually made this claim about the Treasury memo. This blatantly disregards legal procedure for the deliberative process privilege. Here is a relevant quote from Judge Sweeney’s order on the Government’s claim of deliberative process in the Fannie case:
SWEENEY: Generally, to be exempt from disclosure under the deliberative process privilege, the government must show that the information is pre-decisional and deliberative. In re United States, 321 F. App’x at 958 (citation omitted). Pre-decisional documents “may include recommendations, draft documents, proposals, suggestions, and other subjective documents that reflect the personal opinions of the writer rather than the policy of the agency.” Id. (citation omitted). Such documents are deliberative “to the extent that they reveal the mental processes of decision makers.” Id. (citations omitted).
A claim of deliberative process privilege, even when properly established, “is not absolute.” Marriott Int’l Resorts, L.P. v. United States, 437 F.3d 1302, 1307 (Fed. Cir. 2006). Rather, the privilege is qualified, and “subject to judicial oversight.” Id. “After the government makes a sufficient showing of entitlement to the privilege, the court should balance the competing interests of the parties.” Scott Paper Co. v. United States, 943 F. Supp. 489, 496 (E.D. Pa. 1996) (citing omitted). Plaintiffs may overcome the privilege by making “a showing of evidentiary need . . . that outweighs the harm that disclosure of such information may cause to the defendant.” Pacific Gas & Elec. Co. v. United States, 70 Fed. Cl. 128, 134 (Fed. Cl. 2006).
Here, defendant has not provided a privilege log explaining why documents identified as responsive to plaintiffs’ discovery requests would be protected. Indeed, defendant admits that even it has not reviewed some of them, and yet claims that the documents are privileged. See id. at 135 (“the party seeking protection must state with particularity what information is subject to the privilege [and] the information or documents sought to be shielded must be identified and described” (internal citations and quotation marks omitted)). Overall, defendant advances general claims concerning the sensitive nature of the documents, and the adverse consequences that would result from divulging them. Without more detail regarding the content of the documents, or the opportunity to review them, the court cannot make a finding that they fall under the privilege. Id. (“[A] blanket approach to asserting the privilege is unacceptable and is itself grounds for denying invocation of the privilege.”) (citation omitted). In essence, defendant asserts that the court should merely take its word that the documents—some of which defendant, itself, has not reviewed—are privileged. This suggestion is contrary to law. However, even as it is difficult to evaluate the likelihood of the fallout from disclosure that defendant describes, out of an abundance of caution, the court will exercise care in attempting to avoid the dire consequences that defendant claims will occur. Accordingly, as outlined in the June 19, 2014 hearing, the court has fashioned a solution to balance the parties’ competing needs, and to comply with the dictates of the deliberative process privilege.
Since they did not mention this document and prove to the Court that it should be protected, their response is invalid.”
Though it appears that Trevor has checkmated the DOJ, technically I believe it is now their move. Keep the Faith!