Nader Questions Government Assurances In Regards To Fannie, Freddie

Nader Questions Government Assurances In Regards To Fannie, Freddie

Fannie Mae

Photo by NCinDC

Ralph Nader, the once populist reformer and Green Party candidate for president who favored environmental issues, has recently taken to shareholder activism, particularly when he is a shareholder in the stock.  As previously reported in ValueWalk, he used his public platform to call on Carl Ichan to step in to help boost the takeover offer of Sirius XM Holdings Inc. (NASDAQ:SIRI), a stock he owns.  Nader currently has his sights set on Fanny Mae and Freddie Mac.

Earlier this month Nader took to speaking out about another of his holdings: Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC), where he pulled no punches.

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In a “Shareholder Respect” roundtable, Nader kicked off the event by indicating that the actions of government officials might have resulted in legal action had they occurred in the private sector.  Noting assurances made by U.S. Federal Reserve Chairman Ben Bernanke, then U.S. Treasury Secretary Henry Paulson and Chairman of the Oversight Board of the Federal Housing Finance Agency (FHFA) James Lockhart III, the regulator of Fannie Mae and Freddie Mac, Nader demanded accountability for unusual statements about the stock’s health leading up to the collapse.

Before collapse shareholders told “nothing to worry about”

“In all the discussions following the 2008 Wall Street collapsed that involved Fannie and Freddie, there was very little attention paid to the owners, the shareholders,” Nader said in prepared remarks. “These shareholders were assured in 2008 by the regulator (Lockhart) and then Chairman Bernanke and Secretary Paulson that both Fannie and Freddie were adequately capitalized and there was ‘nothing to worry about.’  Then a few weeks later they collapsed… What was interesting about those assurances (from Lockhart, Bernanke and Paulson) is that they were conducted by government officials.  If corporate officials ever made those kinds of deceptive comments, even the Securities and Exchange Commission would have woken up and we would have seen some enforcement clarity.  But it didn’t happen.”

Fannie Mae and Freddie Mac’s government conservatorship at issue

After the government assurances, Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) collapsed, Nader notes, and then the companies “went into something called a ‘government conservatorship,’ which is a unique concept quite different from corporate bankruptcy whose structural outlines are now being challenged in a variety of court cases.” The government conservatorship has been a contentious topic.  As previously reported in ValueWalk, the U.S. government has essentially seized the now highly profitable Freddie and Fannie and has not distributed earnings to shareholders.

Shareholders maintain the decision by the Treasury to claim Fannie Mae and Freddie Mac profits as dividend payments is “plainly unlawful,” according to Theodore Olson, a lawyer at Gibson, Dunn & Crutcher LLP representing a shareholder, hedge fund Perry Capital. Olson, a former U.S. solicitor general who represents them, who spoke at the event, said “This deal has proven extraordinarily lucrative for the federal government.”

When characterizing the jilted shareholders, Nader described the group by saying “We are not talking about day traders.  We are talking about investors who had been told Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) were the safest investments next to treasuries.” The government is now treating shareholders “as if they were zombies,” he said.

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Mark Melin is an alternative investment practitioner whose specialty is recognizing a trading program’s strategy and mapping it to a market environment and performance driver. He provides analysis of managed futures investment performance and commentary regarding related managed futures market environment. A portfolio and industry consultant, he was an adjunct instructor in managed futures at Northwestern University / Chicago and has written or edited three books, including High Performance Managed Futures (Wiley 2010) and The Chicago Board of Trade’s Handbook of Futures and Options (McGraw-Hill 2008). Mark was director of the managed futures division at Alaron Trading until they were acquired by Peregrine Financial Group in 2009, where he was a registered associated person (National Futures Association NFA ID#: 0348336). Mark has also worked as a Commodity Trading Advisor himself, trading a short volatility options portfolio across the yield curve, and was an independent consultant to various broker dealers and futures exchanges, including OneChicago, the single stock futures exchange, and the Chicago Board of Trade. He is also Editor, Opalesque Futures Intelligence and Editor, Opalesque Futures Strategies. - Contact: Mmelin(at)
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