Will Ackman's Plan for Fannie Mae Backfire?

Ackman's smoke and mirrors ploy about his so-called bail out plan of Fannie Mae (FNM) should earn him top honors as Wall Streets best BS artist.  But could Ackman's passive arrogance backfire and become self-destructive? 

 

It got waste deep as the CNBC red carpet crew paid homage to William Ackman, hedge fund manager of Pershing Square Capital.  Apparently enamored by Ackman's subtleties, boyish charm, and parlor antics, Joe K. and company failed (as usual) to ask the right questions and challenge this snake oil salesman, but instead allowed the fear-peddling Ackman to execute his plan virtually unchallenged.

 

His plan?  Now that's what you really didn't hear, but you did see it in action!  His plan, the unmentioned one that he just happened to think of recently, was never mentioned.  The plan goes something like this. 

 

1.  Heavily short FNM,

2.  Create colorful and impressive charts that reinforce negativity. 

3.  Appear on CNBC with the meaningless charts.

4.  Walk the frightened sheep through a chart  "paper talk" that concludes with the stock being worthless.

5.  When the stock plummets, cover.

 

While Ackman's chicanery is overtly typical of short sellers, it appears to work quite will in separating investors from their capital and causing stock prices to plummet.  The real insult here is not Ackman's bag of tricks, but the lack of balance on CNBC's part.  There are two or more sides to every story.  Where was the opposing view?  What we heard Tuesday was one-sided hyperbole.  One would think that in matters of such national, financial importance, we would not give the microphone to someone whose only goal is to undermine and destroy the public confidence for financial gain.

 

Disclosure: Writer does not have a long or short position in FNM.

 

Comments

[Research123:]

Finally a grown up in the room. Hopefully you can entice others out from under their chairs.

2008 Jul 16 12:11 PM

[jerry p:]

I don't think Ackman that going on CNBC is going to influence many institutions and funds if he is not making sense. IndyMac and New Century didn't go bankrupt because of shorts. Look no further than management and yourself when you lose money on your investments.

2008 Jul 16 12:26 PM

[Ishortyou:]

I think the depositors got scared and draw their money from Indymac specially the ones that had more than 100,000 dollars in the bank, the withdraw made the bank insolvent in a heart beat, sad really....

2008 Jul 16 12:55 PM

[KPJ:]

Why is it that you say his presentation and charts were meaningless? I suspect it's because you couldn't understand his arguments. Converting 10 cents of senior debt into new common equity would have a meaningful impact on the leverage of the company, reducing it from about 129x to 42x. This newly created company would be in a much much better position to be profitable going forward and this would cost taxpayers NOTHING. The only ones who lose from this scenario are current shareholders, who have clearly made a bad investment and must face the consequences.

If you have legitimate issues with specific aspects of his plan, you should point them out and refute them. Calling it "meaningless" is not the most insightful argument I've ever heard. And in regard to your point about CNBC not being balanced, I believe they've had the CEO of Fannie Mae on the show the last 2 days in a row.

2008 Jul 16 06:19 PM

[fxtrader07:]

og course cnbc will not ask ackman tough questions. cnbc is run more less by jim cramer when it comes to the stock markets. and cramer is as close a buddy of ackman as can be.
deepcapture.com it's all to be read there. a lot of stuff - but really eye-opening about the cramer-media network and how they work with hedgefunds and najked short sellers

2008 Jul 17 07:46 AM

[jerry p:]

IndyMac was already insovent long before Schumer said anything. The stock price went from $70 to $1.30 before the Schumer comments. It's really not sad that a bank like IndyMac was shut down. They gave out hundreds of billions worth of high LTV loans without verifying the income or assets of the borrowers. In what world will a business model like that survive?

2008 Jul 18 02:27 PM