tag:blogger.com,1999:blog-4815867514277794362.post2394972141014371994..comments2024-03-08T06:18:28.125+11:00Comments on Bronte Capital: The Fannie Mae and Freddie Mac reform proposal from Goldman SachsJohn Hemptonhttp://www.blogger.com/profile/03766274392122783128noreply@blogger.comBlogger14125tag:blogger.com,1999:blog-4815867514277794362.post-19521112696170774852012-10-24T10:00:14.814+11:002012-10-24T10:00:14.814+11:00John,
A couple of things here. e21 has posted a m...John,<br /><br />A couple of things here. e21 has posted a more recent article that seems to be more friendly to the plight of our defaulted preferred shares. In addtion, Swagel has jumped onto the Millstein proposal to recapitalize the GSE's. With all of these developments, I had a few questions.<br /><br />1. It looks like Millstein's plan will be positive for preferred shareholders. Do you agree and support his plan?<br />2. Is Swagel's plan more appropriate now that there is pretty much no hope left for FnF to keep large portfolios in the future?<br />3. If Millstein and Swagel can be counted on to push to recapitalize FnF, should preferred shareholders start backing them?<br />4. A lot of preferred shareholders I know believe the Millstein/Swagel plan is our best shot and are thinking of voting Republican to support this plan. As opposed to the indefinite nationalization the Democrats seem to want. I'm not sold either way actually. What's your viewpoint on this?Matt Hillhttps://www.blogger.com/profile/15522057373852681455noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-58152455577011639682010-06-19T06:21:36.792+10:002010-06-19T06:21:36.792+10:00Yea, I missed this piece when it first came out, a...Yea, I missed this piece when it first came out, and decided to look in after the delisting news. Why now? They could have done this a year ago. FRE was this close to going to the Russell index when the rug gets pulled, and there's been so much talk about July.<br /><br />Thanks for your thoughts on this.michaelnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-28709495105044763772010-06-18T02:50:32.929+10:002010-06-18T02:50:32.929+10:00John,
I am puzzled by your reply to Anonymous. Loo...John,<br />I am puzzled by your reply to Anonymous. Looking back at your '08 thesis it appears your silence indicates politics prevailed and the preferred is dead with de-listing the first step. Your comment please.<br />Thank you. Best Regards, Walterwalthttps://www.blogger.com/profile/04349366745869779104noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-91142364091011331082010-06-18T02:08:49.950+10:002010-06-18T02:08:49.950+10:00I agree with your thoughts but I am going to go fu...I agree with your thoughts but I am going to go further as there is one comment in the proposal that really jumped out at me as signifying the worrying success of groupthink.<br /><br />"It appears inevitable that the government will play some role in backstopping mortgage finance."<br /><br />No. No. No no no. Why is it inevitable? Because there isn't enough credit in the world? Listen, bankers take credit risk, that's what they do. Governments shouldn't take it. If there isn't enough credit in the world to support higher house prices then GUESS WHAT HOUSE PRICES ARE TOO HIGH AND SHOULD BE ALLOWED TO FALL!!<br /><br />Let's speak the words that apparently may not be uttered. No government subsidy of mortgage markets. No tax subsidy of property derived profits. No tax relief on mortgage interest. And no to the fallacy that rising property markets are a "good thing".Pete Dhttps://www.blogger.com/profile/11459449132460797218noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-24632505795742655052010-06-14T01:19:34.564+10:002010-06-14T01:19:34.564+10:00Hi John:
Since we are on the topic of GSEs, I'...Hi John:<br />Since we are on the topic of GSEs, I'd be interested to know your current thoughts on their preferred shares, a topic you wrote a series of detailed blog posts about last year. It would be great to see a followup posting.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-54464536743879077152010-06-12T04:42:09.908+10:002010-06-12T04:42:09.908+10:00Hi John,
I don't understand the following. Ov...Hi John,<br /><br />I don't understand the following. Over the years, how did FNM and FRE successfully managed their interest rate risk? <br /><br />I am very puzzled by this. After all FNM and FRE have been around for a long time and over widely differing interest rate and inflation environments. What is the key insight those who worried by FNM and FRE's interest rate risk missed?<br /><br />If you've already written about this, please point me to it.<br /><br />Thanks.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-16793237574045974832010-06-12T00:07:45.208+10:002010-06-12T00:07:45.208+10:00First I want to second the thoughts of Mr. Lindmar...First I want to second the thoughts of Mr. Lindmark. Just because this past time they didn't blow up due to interest rate risk, doesn't mean they know how to manage it. Their interest rate exposure has never adequately been tested during a constantly rising rate environment like we had in the 70's.<br /><br />Whether it is credit or interest rate risk, if given enough rope, these people will hang themselves. That to me seems to be the key here. The reason the traditional guaranty business worked so well was because it was originally designed in the depression era, when thinking was pessimistic and it had a public goal, not a private one.<br /><br />As is typical with these things, the reason they were able to keep increasing their risk profile over the many decades since was because the original business was designed so well. Even that original design, however, may not have survived this housing bubble and people should not forget this.<br /><br />Finally, one of the reasons the GSE's had to look for other ways to make money (though this started long before the bubble), was because during the bubble their market share was disappearing at an alarming rate. Most institutions when faced with a disappearing business will act in ways that postmortem will look ridiculous (ask Kodak). Self-preservation is a powerful instinct. One positive thing about government institutions is that they have a hard time changing their charter to do stupid things.<br /><br />I offer no solutions just some thoughts.HSNYChttps://www.blogger.com/profile/15395322007245105962noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-69401448697949945842010-06-11T14:45:22.455+10:002010-06-11T14:45:22.455+10:00To be strictly fair: it is possible for the same p...To be strictly fair: it is possible for the same policy to be correct over several decades in a variety of different circumstances.<br /><br />Going out of my way to choose an example which hopefully nobody will have issues with: Let us say there is a country which yearly takes 10% of the farm production, and burns it.<br />The stop-the-burning party says "we should stop the burning, it keeps us poor"<br />Then war breaks out. The STBP says "we should stop the burning, it damages our war effort"<br />The war finished, they struggle to rebuild their economy. The STBP says "we should stop the burning, it makes it harder to rebuild"<br />A nasty plague hits. The STBP says "we should stop the burning, it makes it harder to care for the sick"<br />Plague over, the country starts to build a tower up to heaven. The STBP says "we should stop the burning, it makes it more difficult to built the tower"<br /><br />Should we ignore the STBP just because they have the same solution to every problem?doctorpatnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-89177731060675298652010-06-11T13:57:31.026+10:002010-06-11T13:57:31.026+10:00What's the Canadian model? It seems to work p...What's the Canadian model? It seems to work pretty well, the CMHC charges 3.5% on 95% LTV mortgages plus additional monthly premiums. I believe the CMHC also ends up "long" the house in the event that they payoff the insurance.<br /><br />I think the simple thing is no one can bear that credit risk. If the whole system goes down, then only the government can bail it out... so they may as well be the ones profiting when it is working as intended.Nick Abenoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-836080882060860722010-06-11T13:28:17.628+10:002010-06-11T13:28:17.628+10:00On Basis Capital
Know people - yes
Have thoughts ...On Basis Capital<br /><br />Know people - yes<br />Have thoughts - yes<br /><br />For blog - no. But there are no heroes here - nobody at Basis or Goldman stands up to much scrutiny. <br /><br />Sorry.John Hemptonhttps://www.blogger.com/profile/03766274392122783128noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-47718330595599592012010-06-11T12:36:29.717+10:002010-06-11T12:36:29.717+10:00John
Any thoughts on the basis capital case?
Did...John <br /><br />Any thoughts on the basis capital case?<br />Did you know the people at basis?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-61476722550972450432010-06-11T04:49:46.676+10:002010-06-11T04:49:46.676+10:00John,
This is a totally selfish request, but will ...John,<br />This is a totally selfish request, but will you post a followup on what has happened with the GSEs in the last few months with regard to the probability of recoveries on the preferred stock?<br /><br />It's been a few quarters since you had talked about them, and a lot has happened. So I would love to know your thoughts. Has the thesis become stronger or weakened?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-12379139659811785012010-06-10T19:29:41.886+10:002010-06-10T19:29:41.886+10:00Could not status quo ante be a proposal? Let the G...Could not status quo ante be a proposal? Let the GSEs do their thing buying up conventional mortgages (and some limited amount of Alt-A), and just keep them clear of the private-label MBS and sub-prime stuff?<br /><br />I'd have to go back and double-check, but I think you said back in your earlier modelling posts that their traditional guarantee business wasn't the big problem in driving them into the arms of the government...Potatohttps://www.blogger.com/profile/18157102363273750204noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-56313362853518206632010-06-10T14:04:19.048+10:002010-06-10T14:04:19.048+10:00I have to digest all of your thoughts but as one w...I have to digest all of your thoughts but as one who liked the Marron proposal let me offer a couple of knee jerk comments.<br /><br />First, that the GSEs did not suffer interest rate losses might be as much a function of rates moving in their direction as it is their expertise in managing that risk. We will probably never know the answer to that question but given their ineptitude at running the other parts of their business, it's not necessarily a given that it is in our best interest to double down on their ability to hedge interest rate risk.<br /><br />Second, if you view the Marron proposal in a larger context, specifically reducing the sway of the GSEs and therefore the Barney Franks of the world then it has its attractions. Simplifying and perhaps more aptly neutering the two has a great deal of merit.<br /><br />Third, the Progressives are already developing the meme that Fannie and Freddie were not part of the problem. If you have not read this, I recomment it. http://forums.chicagobooth.edu/faultlines?entry=11<br /><br />Finally, it's going to be a great battle over the fate of these two as well as the considerable political power that goes with their control.Tom Lindmarkhttp://www.butthenwhat.comnoreply@blogger.com