David Stockman in his recent blog attacks Berkowitz’s Fairholme Capital and his posse of punters for taking turns in bidding up the GSE’s preferreds.

David Stockman

The former U.S. politician and businessman in his recent blog at ‘contra corner’ points out after each thundering sell-off during the bust phase, crony capitalist gamblers have been gifted with ill-gotten windfalls during the Fed’s subsequent maniacal money-printing spree.

Berkowitz’s attack on GSEs

Last week, Bruce Berkowtiz’s Fairholme Fund had sent a letter to the board of Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC). He indicated the board of directors of the GSEs are mismanaging the company and urged the board to improve corporate governance. He also asked the board to inform the conservator to relist its common stock and preferred stock on the New York Stock Exchange.

David Stockman: Paper return of 48 times

David Stockman in his recent blog points out Berkowitz’s fund scooped up the worthless Fannie and Freddie preferred stock after the housing bust. Stockman recalls that these preferreds were the securities issued in 2008 at $25 per share to shore up the tottering housing finance agencies just before Hank Paulson’s bazooka sputtered.

David Stockman attacks Berkowitz’s Fairholme Capital and his posse of punters – John Paulson, Perry Capital and Pershing Square, among others- has taken turns in bidding up the worthless Freddie and Fannie’s preferreds. Terming their attempt a ‘patented crony capitalist rush’, he points out the worthless Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) and Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) preferreds have lately erupted from $0.25 per share to $12, implying that some speculators have already garnered a paper return of 48x.

$35 billion payday

David Stockman believes Berkowitz and team’s plan is to put a statutory floor under the current $12 per share price and enable them to dicker with Capitol Hill staffs for an ultimate take-out at par (implying $25) under the guise of ‘privatization’. He points out in his blog that the larceny intended here is not modest, as the payday for Berkowitz and his hedge fund posse would amount to $35 billion on toxic paper which was purchased for rounding errors.

The former U.S. politician and businessman points out that Berkowitz and team want to be paid a king’s ransom for ownership shares in what amounts to a bureau of the US Treasury. David Stockman also takes a dig at Berkowitz comments to a CNBC questioner last fall that having helped before with American International Group Inc (NYSE:AIG), he now merely seeks a ‘win-win’ to “help with jobs, help with the economy, help with the dream of homeownership”.