Law Suits, Timmy’s Bank and the “Po’s” Dough

Agency Lawsuit

A few interesting lawsuits going on in mortgage land. One of interest to me is directed at Fannie and Freddie. The accusation is that these entities made false statements in order to avoid paying required realty transfer taxes to states and municipalities. I’m not sure of the merits of these cases, but they are moving forward.

A description of the case being brought in Massachusetts:

TAUNTON, Mass. (CN) – Massachusetts and 14 of its counties claim Fannie Mae and Freddie Mac conspired to duck property transfer taxes by falsely claiming to be government agencies. The commonwealth and its counties claim the defendants are corporations – not governmental bodies – and owe money for tens of thousands of property transfers and conveyances.

A similar suit has been filed in Nevada. A link to the court filings is worth a look. Consider the defendants that are listed. Basically the Whose Who of finance. (PDF Link)

The claim is that the banks and Fannie/Freddie avoided state transfer taxes. The suggestion is that Fannie lied and claimed that it was a government agency and therefore exempt from the taxes. From the filing:

Fannie Mae used those false records and/or statements to conceal and/or avoid its obligations to pay or transmit money owed to the State for payment of taxes upon the conveyance or transfer of title to real estate in the State by intentionally misrepresenting to the State that defendant Fannie Mae was a government agency exempt from conveyance or transfer taxes.

The law suit(s) covers a period prior to the take over/conservatorship by Treasury. It will be interesting to see how Fannie defends itself. They have two choices. Either they fold their cards and pay monster amounts of old transfer fees to many States, or they defend their original position that they were in fact government agencies prior to August of 2008.

This would seem to put Fannie/US Treasury in a lose-lose position. If these lawsuits go against them they are going to lose a bundle. Every state will follow the MA and NV lead. Billions are involved. The flip side is that if Fannie prevails and actually convinces the Judges that they were government agencies back in 2002-2008 it creates an interesting problem.

If Fannie/Freddie were legally determined to have been “government agencies” for all those years then the government has to be held liable for the consequences of their actions. About $60 billion of common shareholder value was wiped out, another $25 of Preferred equity had a similar fate. If Fannie wins this lawsuit thousands of shareholders of the busted common and Pref are going to file lawsuits.

I have always felt that the government would be held liable for a portion of F/F’s shareholders losses. There is no doubt in my mind that this lawsuit (if and when it comes) would have some merit. The facts are clear. Congress is partially responsible for the demise of F/F.

The MA/NV suits are worth watching as they progress. The pref and common of these dogs are trading in the “Pinks” at next to no value at all. That is a fair price given the losses at F/F. Unless of course they were government agencies all along….

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On FFB

The Federal Financing Bank (“FFB”) is an arm of Treasury. So I call it Timmy’s Bank. There was some year-end stuff at this bank that I thought was interesting. On December 22 FFB made a bunch of new loans to private sector companies totaling $437mm. A nice Christmas present from our pal Tim.

Here’s the breakdown from the December FFB report. Note the month to month changes:

At a time when the country is pushing its own legal debt limit and markets are waking up (and quaking) to the realities of massive funding requirements in front of us I find it interesting that Timmy’s Bank can dole out an extra $437mm on Christmas Eve. After all, the last I heard was that Ford never got a government handout…….

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More on Po Dough

I wrote on Jan 30 that the die had been cast for Mubark and his hidden billions. When Ali was deposed in Tunisia the Swiss government waited about 90 seconds before seizing his money. When Mubark finally announced that he was calling it quits it took the Swiss a somewhat more polite hour to freeze the money and make a public announcement.

Something important about the press release from the Swiss and Murbarak’s cash stash. It came out at 6 PM Friday night in Bern. No one working for the Swiss government is around at that time. This press release was written days ago. It was all set to go, waiting for the last words from Hosni.

These facts will not be lost on the other Potentates who have big holdings with Swiss Banks. The facts are very clear. If you are a Potentate and lose your “Po” you will lose your dough.

I just ask the readers to put yourselves in the Potentate’s position. What would you do if you were faced with losing your Po and dough?

You would do everything in your power to get some of it to a place that actually couldn’t be touched. That would exclude traditional financial assets that can be so easily traced and can’t be made to “disappear”. Gold and diamonds (and a few other things) can be made to disappear. The amounts involved with all of the Po’s are so very large that I am wondering if we don’t see some effect on prices of physical “stuff” (+) and paper assets (-).