The court has a complicated decision to make because HERA says that the courts cannot interfere with the decisions of the conservator, or the power to make decisions of the conservator. If the court were to nullify the profit sweep it might interfere with an important strategic decision the conservator decided to make that would have accomplished the goals of the legislation without its interference. The decision of the conservator to enter into the third amendment is an extreme decision because it is not reversible using his conservatorship powers. Because the Third Amendment gives away the profits of the Enterprise forever to the Treasury Department, and cannot be reversed without the consent of the Treasury Department, the decision has to accomplish the legislative intent of HERA via its ramifications.
Our situation is especially sad because it turns a process that could have been effective in an emergency into a politicized farce dominated by ill will and a Machiavellian passive aggressive decision making process. There could be some grand and sophisticated strategy that makes the Third Amendment vital to accomplishing the legislative intent of HERA, but no explanation at all has been forthcoming by the FHFA or the Treasury Department about how that agreement accomplishes the goals of the legislation. As shareholder's we are asked to ignore our eyes, ears, and reasoning abilities and to put our faith in the good will of the Treasury Department and the FHFA. We are expected to do so as they ignore our phone calls, filibuster in the media, and vehemently attack our lawsuits with superfluously arrogant declarations of their power to decide our fate and their supremacy in deciding it. If a person wearing a ski mask and holding a crow bar is breaking into my house then he's probably a robber. So to should the government be called a robber if its wearing the outfit of a robber, and it's pretty obvious to almost everyone but their lawyers that they are.
When someone views the details of that agreement the case for conservatorship under HERA becomes even weaker. The agreement with Treasury specifically calls for the companies to decrease their financial strength over time by gradually eliminating their capital cushion from a retained amount of 500 million to an eventual amount of 0 in 2018. A capital cushion is inherently designed to protect against losses. By forcing the GSEs to turn over 100 percent of their profits and to reduce their capital cushion to 0 that puts them in a worse financial position by definition. The goal for conservatorship under HERA is to INCREASE soundness and solvency. If by every reasonable metric it appears that conservator is intentionally going against the goals of his empowering legislation and fails to communicate the soundness or necessity of his actions, then the court has no choice but to nullify those decisions under state law. This is especially true because all economic indicators point to the companies already being sound and solvent without the agreement. Unless 4 billion dollar quarterly profits is a sign of insolvency. If their accounting can reasonably be concluded to be legal then the court should also reasonably conclude some degree of solvency as well.
The language in the state law says that preferred shares cannot be modified in a way that adversely affects their value unless that class of shareholders is first allowed to vote to make that happen. That is true even if they are not entitled to vote as part of that class of shares. Now the government will argue that the conservator gains all the rights and privileges of the shareholders by being the conservator and therefore has the authority to vote in favor of any changes himself on behalf of the shareholders. The government is correct only when the conservator is attempting to follow the legislative intent of HERA to "preserve and conserve the assets of the Enterprises, and to bring them into a sound and solvent condition". Is signing a contract with the Treasury Department to give the net worth of the companies away in perpetuity consistent with the legislative intent of Congress? No, because the legislation requires the conservator to pick the most optimal path available to allow him to preserve and conserve the assets of the Enterprises and to bring them into a sound and solvent condition. By giving away their profits to the Treasury Department the Enterprises miss out on the opportunity to invest those profits in ways that would make them more financially stable and increase their assets. If the original agreement was the most profitable path for shareholders the conservator has to have a very good reason for not taking that path if he could have otherwise taken it. But once he signed that contract he can't reverse his decision because he has passed on the consent of the shareholder's through that contract to the Treasury Department. So even if shareholder's would have been more more likely to benefit from their shares under the previous arraignment no one besides the Treasury Department or the courts has the power to modify that agreement.
To put pressure on the government to change its mind it has to see us protesting its actions. That means a combined and concentrated effort to show that people will not get re-elected based on this issue. To move Congress or the president to act they have to know they will lose votes in the presidential election and future congressional elections if they don't act. So I propose we start a coalition based on this one issue. Politicians like to make elections about issues they control but they do not like it when voters pick their own singular issue to base their voting decision on because it causes them to have to take actions they do not want to take and it gives the voters power.
Our goals are these:
1. Release Fannie Mae and Freddie Mac from conservatorship
2. Nullify the 79.9 percent warrants
3. Relist the companies on the NYSE asap
4. Nullify the Sweep Agreement and calculate monies owed based on the original terms of the agreement
How we accomplish our goals:
1. We contact lobbyists in Washington D.C. and tell them to take a position in the companies and then to use their political influence to steer things in the right direction.
2. We contact non-profits and affording housing groups and get them to protest much more actively. They too can start accumulating common stock positions in an attempt to help their worthy causes and to engender public sympathy with the stakeholders.
3. We make this a primary voting issue. Any politician that isn't for our cause publicly is the same as them being against our cause and will not be voted for, and that includes for the presidency.
1. State and federal income taxes paid by the GSEs. If the government has the right to the vast majority of the profits then the taxation of the companies by the federal and state governments would definitely be at least partially recoverable because the tax rate for corporate income should be different based on the new structure of how it is distributed.
2. Appeals to the IRS for a tax ruling or accounting treatment.
3. Anything that seeks to fight for the shares to be de-listed or re-listed. Official regulatory complaints and lawsuits in relation to the status of the stock.
4. Lawsuits against the companies themselves.
5. Injunctive and declaratory relief regarding anything related to the company
6. Boycotts, walk-outs, and strikes by employees. Unionization efforts for employees.