written by reader Any insight on “A New Political Crime Bigger Than Watergate?”

By jcaldwell@nsai-petro.com, May 6, 2016

Stansberry Digest mentioned this today.
A New Political Crime Bigger Than Watergate?
They are discussing 100 Billion stolen by the government and specific people that is finally becoming known. 10000 pages released by court order, etc.
It might be Fannie Mae related.
” It’s a large enough potential lawsuit to drive these shares up by 10 times.”
I was hoping someone might know what the two companies that could be 10 baggers were.

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CP
CP
4 years ago

I agree that this is Fannie Mae related.

JOHN
4 years ago

I BELIEVE THAT THEY ARE BOTH HEALTHCARE STOCKS AND ITS ALL GOING BACK TOO OBAMA CARE AND THE 100 MILLION BUILDING OF THE FAILED SYSTEM THAT COUDNT MANAGE ANYTHING SO IT WAS A WASH
ANYONEKNOW WHAT COMPANY THAT WAS

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Travis Johnson, Stock Gumshoe

This is all about Fannie Mae and Freddie Mac, both of which were taken over by the government in the financial crisis but are also still publicly traded. Lots of lawsuits are very active right now, most alleging an illegal “taking” because the government owns 80% of the two but has taken all profits in dividend payments (which, thanks to the housing recovery, have totaled more than the original bailout).

No idea how this will work out, lots of big hedge funds have teams of lawyers on it and are active in the cases, including Bill Ackman’s Pershing Square (which I still have some money with), and it’s likely to be a very binary outcome — either the shares (common and preferred) are worth several times more than the current price if some big lawsuits are won and the government is found to have taken more than is allowed without compensation, or they’re worth nothing if the government maintains full control and shareholders get no share of the earnings. Or a third option, I suppose, is that real estate crashes again before the legal issues are settled and there are no profits to be had or another bailout is required.

That’s an oversimplification, but there’s a huge amount of coverage of this issue in the financial press — here are a couple columns if you’d like some additional perspective:
George Will — Fannie/Freddie Rip Off
Robert Samuelson (background on what happened during bailout)

And here’s what Ackman wrote in the latest Pershing Square quarterly letter:

Fannie Mae (FNMA) / Freddie Mac (FMCC)
Fannie’s and Freddie’s underlying earnings continued to progress modestly in the core mortgage guarantee business as the guarantee fee rate increased and credit costs declined. In addition, the non-core investment portfolio continued to shrink, resulting in a less risky and more capital-light business model. While underlying earnings improved, reported earnings remained volatile due to non-cash, accounting-based derivative losses in the non-core investment portfolio. As a result of the derivative losses and the Net Worth Sweep, the companies are at risk of requiring a capital draw from Treasury to maintain a positive net worth. As a result, there recently have been a number of proposals from policymakers, trade groups, and industry analysts that seek to have the
GSEs retain capital so they are capitalized on a standalone basis.

“In the Perry case in the D.C. Court of Appeals, new evidence came to light that shows Treasury entered into the Net Worth Sweep immediately after learning from Fannie Mae’s CFO that the company expected to soon realize ~$50 billion of profits from reversing a deferred tax allowance and expected to become sustainably profitable over time. We believe this new evidence further bolsters the Perry and Fairholme cases and our contention that the Net Worth Sweep is illegal.”

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