NY Sun on GSE Buyout: Why Not Exxon, Too?

We don’t have a position in the GSEs one way or the other. That said, this reaction to their pending takeover by the Feds, from the New York Sun, provided an interesting contrast to the general air of celebration on Wall Street yesterday morning:

Imagine if the Bush administration, having decided that gasoline prices are too high, decided to nationalize ExxonMobil. The federal energy secretary held a Sunday press conference to announce that the Bush administration had replaced the company's management, that the company would henceforth be run with the goal of reducing gasoline prices for drivers, and that any profits the company made would be the property of the federal government, which would now control 80% of the company. As for the company's existing shareholders, they are out of luck — they won't get any more dividends; they won't even get a chance to vote on the deal. 

Substitute mortgage prices for gasoline prices and you get a pretty good sense of what the Bush administration and its secretary of the Treasury, Henry Paulson, did over the weekend in respect of Fannie Mae and Freddie Mac. The administration decided that its interest in low mortgage rates as an artificial boost to housing prices was more important than the property rights of the shareholders of Fannie Mae and Freddie Mac. So without even so much as a shareholder vote, the companies were nationalized.

Doesn’t the Constitution have a word to say about what the government can and can’t do under these circumstances? I think it does! For its part, Dodge & Cox, Fannie’s (FNM) second-largest holder with an 11% stake, tells the Wall Street Journal, "We are currently studying the implications of the unprecedented action...and are reviewing our options." Other major GSE holders of course include Legg Mason, Capital Research, and Pzena Investment Management. It’s not as if these companies don’t have lots and lots of money to fund litigation. . . . And it’s not as if, either, they’re going to obviously lose. . . .

P.S.: Feedback from actual lawyers, especially constitutional ones, welcome. . .

Comments

[CrossProfit_:]

Good links!

CrossProfit

2008 Sep 09 06:08 AM

[madasiwannabe:]

Great article and point. The GSE's are now in worse shape than they were on Friday. Very interesting timing. Friday both stocks were up, Tuesday Fannie's auction had decreasing spreads, and the government reported both companies had $70-80 Billion in capital and had banked large loan loss reserves in Q2.

Proportionally they were in better shape than the rest in the segment. $30 Billion in losses over 12 months against a $5 Trillion portfolio, verses $500 Billion in losses over the same period with $7 Trillion worth of mortgages.

CEO's get a $10 Million severence from the taxpayers for getting removed by government regulators? How does this happen? Did we do the same for IndiMac's CEO?

The truth needs to come out.

2008 Sep 09 07:01 AM

[blondino:]

this is all pretty bizarre...especially if they can walk away with it...but hey, let's tap the juices and let new government deal with it (- one possible scenario)

2008 Sep 09 07:15 AM