I find it reassuring when I am invested in a Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB: FNMA)  and Federal Home Loan Mortgage Corp (OTCBB:FMCC) / Freddie Mac (or lack thereof)  legal case and my line of thinking seems to coincide with the side I am invested with. This isn’t to say “I am right” or that my side will be the winner (it does all comes down to what the judge rules) but it does tell me though that I have a real good grasp of the arguments here.  That does help an investor begin to weigh odds of success failure and make investments accordingly. It also allows for more informed thought given the inevitable wild and  Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB: FNMA)  and Federal Home Loan Mortgage Corp (OTCBB:FMCC) / Freddie Mac (or lack thereof) unpredictable price swings that always accompany this type of investment.  If the price tanks due to a news report (the media is famous for getting these cases VERY wrong) or a filing, having a good grasp of what is going on allows one not to panic but rather to make a rational decision.

On June 3rd I said:

Their response is striking in both that they re-argue most of the points Sweeney previously rejected in allowing the discovery in the first place……

On June 10th lawyers for Fairholme responded to the gov’t motion by saying in their opening paragraph regarding  Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB: FNMA)  and Federal Home Loan Mortgage Corp (OTCBB:FMCC) / Freddie Mac (or lack thereof):

If a single theme runs throughout the Government’s motion, it is the suggestion that the Court should reverse or substantially narrow its earlier ruling authorizing discovery. Thus, the Government rehashes its arguments that discovery should not go forward because Plaintiffs’ claims fail as a matter of law and would impermissibly interfere with FHFA’s operation of the Companies. The Court has rejected those same arguments before, and it should do so once again.

Regarding FHFA Head Watt’s statements:

On June 3rd:

At this point one must ask Director Watt if he is paying attention to anything going on in Congress? It is now almost a daily drumbeat from Sens Warner, Crapo, Johnson and Corker that the GSE’s must be eliminated. Is there anything more potentially destabilizing to an entity than Congress calling for its obliteration? Didn’t the Johnson/Crapo bill just exit the Senate Banking Committee (although just barely)? Doesn’t that bill call for the wind down of the GSE’s?

Fairholme said regarding  Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB: FNMA)  and Federal Home Loan Mortgage Corp (OTCBB:FMCC) / Freddie Mac (or lack thereof):

This assessment is confirmed by the fact that government officials have frequently opined on the Companies’ future without any apparent concern that doing so would adversely affect mortgage markets. The Government has already released reports containing detailed, forward- looking financial projections for the Companies, including as recently as six weeks ago.4 The Government’s assertions, backed by sworn declarations, that the financial markets could be de- stabilized by public disclosure of the Government’s internal “projections of the future profitabil- ity of Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB: FNMA)  and Federal Home Loan Mortgage Corp (OTCBB:FMCC) / Freddie Mac (or lack thereof) under a range of economic, business and policy scenarios,” Watt Decl. ¶ 7, raise this all but inevitable inference: either the Government’s public reporting of precisely this same type of information has been misleading, or its alleged concerns about market destabilization are a pretext for some other reason(s) to conceal the re- quested information. Moreover, FHFA and Treasury officials have publicly disclosed their decision to wind up the Companies and not permit them to rebuild capital and exit the conserva- torships.5

The financial calamity the Government predicts has not come to pass. 6

 

I fully expect the government’s motion against Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB: FNMA)  and Federal Home Loan Mortgage Corp (OTCBB:FMCC) / Freddie Mac (or lack thereof)  to be denied. Judges really don’t take too kindly to the basis of your argument being “Judge, we should win this motion because like we’ve said repeatedly,  you were wrong in your initial decision………”

Yeah……guess how that is going to go over…

Fairholme Response RE Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB: FNMA)  and Federal Home Loan Mortgage Corp (OTCBB:FMCC) / Freddie Mac (or lack thereof)

The gov’t may again try to request reconsideration of this Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB: FNMA)  and Federal Home Loan Mortgage Corp (OTCBB:FMCC) / Freddie Mac (or lack thereof) ruling when it goes against them but by that time it will have been the 4th attempt to win the same argument and denial of their request will be just a formality.   As I’ve said before this really starts getting interesting once full discovery starts after this ruling (no time frame on that). I also think attitudes both in Congress and FHFA/Treasury get a whole lot more cooperative.  None of the folks who initiated the conservatorship or the 3rd Amendment are still around. Bush, Geither, Paulson, DeMarco and Lockhart are all long gone. Those currently in their places can easily save an embarrassing discovery process and even more embarrassing trial by simply throwing those before them under the bus and undoing the conservatorship and 3rd amendment “for the good of Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB: FNMA)  and Federal Home Loan Mortgage Corp (OTCBB:FMCC) / Freddie Mac (or lack thereof) shareholders, taxpayers, financial markets and American homeowners” and look like heros.  In DC that is called “pragmatism”.

However, like all things in DC, they will not come to this solution until their backs are against the wall……….but they will get there

Fannie Mae via Pershing Square Presentation
Fannie Mae via Pershing Square Presentation