For the moment, the seizing of private property by the Federal government has been upheld by Judge Stein.
Under the original terms of the agreement, Treasury received warrants to acquire nearly 80 percent of the companies’ common stock along with a new class of “senior” preferred shares that originally paid a 10 percent dividend.
At issue in the lawsuits is the 2012 decision by Treasury and FHFA to change the bailout terms so that instead of a set 10 percent dividend, the government would take all profits and not require a dividend when they had a loss.
Today (as in 8/14/2014) common shareholders of the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) filed suit in the U.S. Court of Federal Claims seeking to remedy the federal government’s unlawful taking of shareholders’ rights and property in Fannie and Freddie and other violations of law. The shareholder plaintiffs are three individuals and Pershing Square Capital Management, L.P. (“Pershing Square”). The defendant is the United States government, including the U.S. Department of the Treasury and the Federal Housing Finance Agency (“FHFA”).
The complaint challenges the government’s ongoing confiscation of all profits of Fannie Mae and Freddie Mac (the “Companies”). According to the filing, the government is expropriating the Companies’ profits through a 2012 arrangement (the “Net Worth Sweep Agreements”) by which FHFA, purportedly acting as the conservator of the Companies, and Treasury agreed to strip all earnings from both Companies and sweep them to Treasury in cash, every quarter, in perpetuity. These Net Worth Sweeps implement what internal Treasury documents had earlier described as the Administration’s “commitment” to “ensure existing common equity holders will not have access to any positive earnings from the [Companies] in the future.”
Now, the ruling by Judge Stein.
(Bloomberg) -By Felice Maranz- D.C. Circuit appears to have rejected most Fannie, Freddie shareholders’ claims, except contract-based claims regarding liquidation preferences and dividend rights, which are remanded to district court for further proceedings:
* Stein cites ruling:
** “We also reject most of the stockholders’ common-law claims.
Insofar as we have subject matter jurisdiction over the stockholders’ common-law claims against Treasury, and Congress has waived the agency’s immunity from suit, those claims, too, are barred by the Recovery Act’s limitation on judicial review”
** “As for the claims against FHFA and the Companies, some are barred because FHFA succeeded to all rights, powers, and privileges of the stockholders under the Recovery Act”
** “Others fail to state a claim upon which relief can be granted”
** “The remaining claims, which are contract-based claims regarding liquidation preferences and dividend rights, are remanded to the district court for further proceedings”
* NOTE: Earlier, federal appeals court in Washington affirmed “in part” a ruling dismissing a challenge to U.S. govt’s 2012 decision to capture billions of dollars in profits generated by FNMA, FMCC after their bailout; court also remanded “in part” portions of the case
* FNMA slumps 8.4% after earlier rising 3.6%; FMCC falls as much as 6.5% after earlier rising 3.3% intraday
Wow. So, unlawful taking is allowed by the Federal government.
Here is a chart of Fannie Mae Operating income before the crisis and after. After operating income losses in 2007-2011, Fannie Mae has been an income making dynamo (for the US Treasury). You can see why The Feds want Fannie and Freddie under their wing, so to speak.
A closer look.
Was it Judge Stein or Judge Valkenheiser from the film Valkenvia that made that ruling?