There is no way that a statutory scheme that was intended to nurse Fannie and Freddie back to health as private corporations can be used unilaterally by the government to devour the interests of the very private shareholders that they were intended to protect. Government actions that don’t comply with the minimum standards of the APA should have no force and effect. Thus, even if the 2008 transaction stands, the 2012 transaction should be nullified, and the private and common shares restored.
I have no understanding of the legal mechanics. But in economic terms, I do not think that the point of conservatorship was to “nurse Fannie and Freddie back go health.” That would be like saying that you are going to nurse the parrot back to health in the famous Monty Python skit.
Fannie and Freddie were dead as private corporations, because investors would no longer lend to them at interest rates that were low relative to the rates that they could earn on assets. Fannie and Freddie have spent the last five years borrowing at rates that they only could have obtained with full taxpayer backing. The spreads that they enjoyed between the rates on their investments and the rates at which they have borrowed are in no way due to risk-bearing by shareholders. The taxpayers are the risk-takers, and the taxpayers deserve the rewards.
Epstein may have some points in terms of legal technicalities. But I think it’s a stretch to say that unless those technicalities are dealt with, the entire rule of law collapses and shareholders will never again have rights. You have plenty of rights if your management does not drive your highly-leveraged company into ruin, so that the only way it can stay out of bankruptcy is to get the government to put its full faith and credit behind your paper.
Prior to 2008, a large percentage of Fannie and Freddie’s stock was held, I believe, by financial institutions. IE, traditional banks were to varying degrees crowded out of the prime/conforming mortgage market by F&F’s low cost of capital and minuscule capital requirements, so holding equity in F&F was a way for those banks to still make a buck off traditional mortgage lending. In fact, I think the risk-weightings in effect at the time for calculating risk-based capital requirements gave F&F’s shares favorable treatment relative to other equities (I could be wrong about that; it’s been a while). I wonder if that’s still the case today. Probably not.
I respond that out of soon coming credit and financial crisis, the fiat money system will be replaced by the diktat money system wherewhere diktat serves as trust, medium of exchange, wealth and power. Liberalism was characterized by full faith and credit in the world central bankers. Revelation 13:3-4, foretells that Authoritaritarianism will characterised by worship of the Beast Regime and its nannycrats. And Revelation 13:5-18, communicates that it will also be characterized by worship of a New Pharaoh and a New Prohpet.