Berkowitz dismisses rationale for GSE "profit sweep"

"Total nonsense," says Bruce Berkowitz of Treasury's claim that 2012's altering of the Fannie (FNMA +4.1%) and Freddie (FMCC +3.3%) bailout - in which regular dividends were scrapped in favor of the "profit sweep" - was necessary because at the time it was worried the two couldn't earn enough to make the payments (a forecast the improving housing market has made wrong).

Berkowitz's reading of the original bailout says the GSEs could have issued more stock to Treasury in lieu of cash, and he's' scratching his head as to how both the government and the GSEs failed to know this. Conspiracy? “I prefer the simpler reason that no one bothered to read the agreement.”

Another reason is government lawyers' reading of the documents differs with Berkowitz. Ultimately, a judge will probably decide.

Separately, how going long Fannie and Freddie became the latest version of The Greatest Trade Ever.

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Comments (16)
  • Blitztour
    , contributor
    Comments (61) | Send Message
    At last, the suggestion of "Conspiracy" and manipulation. It’s no secret that the failure of these GSE came via fraudulent investment instruments constructed by the banks and championed by the Fed. But now, (thanks to the efforts of those with a ton of skin in this game) the courts are gonna have to take a long hard look at this and they’re gonna rule in favor of the shareholders!


    As I said in my comments of July 12th 2013:


    "The illegal seizure of F&F and the mid stream policy change to deny them the opportunity to repay and return to the public, is another attempt to cremate the body before the America public gets a chance to see what the banks did and hold someone responsible for destroying the economy and sending us in to the worst post war recession, ever.
    They don’t want to debate or have open hearings as to why. They just want to kill them."


    IMHO, that chance is now past! There is no way or will to shelf thes companies and we're gonna get em back!
    10 Mar 2014, 01:31 PM Reply Like
  • Welderman6
    , contributor
    Comments (6) | Send Message
    with out FnF there will be no 20-30 year fixed rate loan for a home. just think what that would do to the U.S. economy.
    10 Mar 2014, 01:49 PM Reply Like
  • oilman545
    , contributor
    Comments (64) | Send Message
    The government created these GSEs and sold shares to the public. That means the government can't do anything that is not in the best interest of the shareholders. Its a fundamental precept of Capitalism. The government got its TARP money back, now its the shareholders who get dividends. There is no other way.
    10 Mar 2014, 01:59 PM Reply Like
  • wpdsr001
    , contributor
    Comments (65) | Send Message
    As I have repeated over and over again, this issue needs to go (fast track) to the U.S. Supreme Court.


    First: To protect and indemnify the current stockholders.


    Second: To set a precedent that this does not ever happen again to a US company or stockholder.
    10 Mar 2014, 02:20 PM Reply Like
  • mag1205
    , contributor
    Comments (2444) | Send Message
    It appears that both Obama govt. and the congress is trying to protect big banks who basically created mortgage meltdown. U.S. govt. doesn't want the shareholders to know the truth behind this meltdown.
    10 Mar 2014, 02:32 PM Reply Like
  • David Sims
    , contributor
    Comments (784) | Send Message
    Here's a good reason for people to feel skeptical of anything the government says with regard to Fannie and Freddie.


    June 2010
    Fannie-Freddie Bailout Could Cost Taxpayers $1 Trillion


    March 2014
    Taxpayers on track to net $179B from GSEs
    10 Mar 2014, 03:27 PM Reply Like
  • David Sims
    , contributor
    Comments (784) | Send Message
    There were a few hedge funds and retail investors that never believed the $1 trillion estimate and that is why they bought the common stock of these two private companies. They ended up being right.
    10 Mar 2014, 03:28 PM Reply Like
  • Yorick
    , contributor
    Comments (775) | Send Message
    I don't care what nameplate you slap on the front of the building, Fannie, Freddie, Ginny, Wells Fargo, Bank of America. To cover trillions in mortgages the name that will ALWAYS be behind mortgages is the US Taxpayer, aka US Treasury. No one else can cover. No one else will take the risk of a 30 yr mortgage without it. And the Treasury running rampany over shareholder rights no matter how "dire" the moment was is ILLEGAL. Judge will return this to taxpayers and the sooner the Treasury does it themselves the better. The government also has no right to expect or demand a "tip" for the backstopping. It is simply a function that was tapped and repaid...done.
    10 Mar 2014, 03:51 PM Reply Like
  • Bradgrp61172
    , contributor
    Comments (95) | Send Message
    Hear, Hear. You are all absolutely correct. Further, the government protected the shareholders of AIG, GM, BofA, and all the other companies that were facing catastrophe during the crisis. The government bailed these companies out, loaned money at deep, deep discounts or gave free money to them and once the financial markets loosened, the government allowed these companies to be returned to their rightful owners, the shareholders. What's the difference with F&F. Sounds like an equal protection of the law, 14th amendment violation also.
    10 Mar 2014, 05:38 PM Reply Like
  • User 20728321
    , contributor
    Comment (1) | Send Message
 it time to buy?
    10 Mar 2014, 09:01 PM Reply Like
  • moneycall
    , contributor
    Comment (1) | Send Message
    Yes. It's time to buy F&F
    11 Mar 2014, 09:47 AM Reply Like
  • DeepValueLover
    , contributor
    Comments (11220) | Send Message
    I learned about how they laughed at Bruce Berkowitz regarding his "All In" bet on Wells Fargo in 1992. With it he made a fortune for his investors. I wish I knew who he was back then.


    His massive buying of AIG was infamous and looked foolish for a while. Now his investors are reaping the rewards of that investment.


    Now he is all about the GSEs.


    History shows that you'd be wise to listen to this fund manager.
    11 Mar 2014, 11:50 AM Reply Like
  • crl1603
    , contributor
    Comments (400) | Send Message
    is the news today a game changer and is anyone aware if any of the large funds that had bought fnma, sold today as a result of the potential wind down.
    11 Mar 2014, 05:37 PM Reply Like
  • David Sims
    , contributor
    Comments (784) | Send Message


    The politicians have been using the words wind down for years. They also used these words when crafting the plan for Sallie Mae.
    11 Mar 2014, 05:39 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (11220) | Send Message
    Bingo, David.


    When it comes to politicians the hot air they spew means how they vote!
    12 Mar 2014, 06:27 PM Reply Like
  • crl1603
    , contributor
    Comments (400) | Send Message
    anyone know if bruce berkowitz has sold any.
    12 Mar 2014, 07:01 PM Reply Like
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