GSE Update — COFC Hearing

Kaoboy Musings 13.5 – 11/20/2019

GSE Update -- COFC Hearing

I guess I should have waited one day before hitting “send” on yesterday’s missive, but since this is timely, I wanted to share this ASAP. 

Of the myriad lawsuits against the Treasury/FHFA by different classes of GSE investors, one very important hearing regarding the government’s motion to dismiss in the Court of Federal Claims (COFC) was held yesterday.  

While I don’t have the full transcript yet, I’ve heard several key soundbites from the presiding Judge, Margaret Sweeney, that appear quite positive for plaintiffs (shareholders):

• She was concerned that the current terms of the Net Worth Sweep would never allow the GSEs to become solvent and exit conservatorship, and she questioned how the government could justify never allowing repayment of the liquidation preference so that the companies can get back on their feet

• She opined that Treasury/FHFA placed the GSE’s in a “death grip” and used them as a “piggybank,” comparing government’s actions to “the mob”

• She opined that a “reasonable investor” would not have expected all profits to be swept to Treasury forever

 While these soundbites appear way more constructive than I expected, I caution that the wheels of justice have moved very slowly in these GSE cases.  Nevertheless, if the COFC strikes down the government’s motion to dismiss, it will add to the political cover that Mnuchin/Calabria need to do the right thing for shareholders.  Stay tuned…

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Kaoboy Musings is a private distribution list/blog that I created to encourage dialogue regarding the economy & markets, geopolitics, investment ideas, and life in general. I have a passion for the markets and investing, and even though I no longer accept investor capital, I try to keep current on global events and opportunities and remain active in the markets.  I’ve always found that writing my ideas down, sharing them with smart people, and encouraging two-way discourse and devil’s advocacy is often the best way to validate or invalidate a thesis and stay mentally flexible.

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