Comments on: On the Ackman GSE Restructuring Plan

By: a

Wed, 16 Jul 2008 07:22:00 +0000

I think Ackman’s plan is not enough to save the GSEs. It’s the minimal necessary to ensure that the shares go to zero and Ackman collects on his short, so I can see why Ackman is pushing it.

The GSEs need a lot more capital, at least according to Roubini. OK sure some of those bond holdings can become equity, but I think bondholders need to take an actual loss.

By: Anonymous

Anonymous — Wed, 16 Jul 2008 05:52:00 +0000

"Ackman may be self interested, but it doesn't make him wrong."

Actually, I agree. If we pay for it, we ought to own it. I felt that we should have nationalised BS also, rather than pay for the downside while leaving the upside to JPM.

I just think full disclosure is usually a pretty good policy.

By: Tom Lindmark

Tom Lindmark — Wed, 16 Jul 2008 04:59:00 +0000

Good article and an interesting proposal. The two folks who mentioned the issue of bank holdings of preferred have a very valid point. It just points up the problem of unintended consequences or unanticipated litigation that might follow.

Maybe it would be better to just take them over, pass legislation that stopped any further interference from the bar. Not very democratic but when you're in a hole you do at some point have to stop digging.

The downside to nationalization in the short term is manageable. The real downside is to nationalize without a plan to wind these two giants down and not have a plan for a new regime.

By: Yves Smith

Yves Smith — Wed, 16 Jul 2008 02:47:00 +0000

Every economist l have read to date who has offered a concrete proposal says the shareholders should be wiped out. What is the justification for taxpayers bailing out a supposedly private entity? None. In a nationalization or debt restructuring, whatever you choose to call this, shareholders are toast.

Ackman may be self interested, but it doesn’t make him wrong.

By: Anonymous

Anonymous — Wed, 16 Jul 2008 02:31:00 +0000

Ackman’s hedge fund is heavily short on the GSE’s. A recommendation that, if taken, results in wiping out shareholder equity will greatly enrich the fund.

This can hardly count as an unbiased approach to the problem.

By: Steve

Steve — Wed, 16 Jul 2008 02:26:00 +0000

Dave’s point about bank holdings of GSE preferred is right on. The OCC encouraged national banks to buy this stuff in 2002, with a reg interpretation permitting “unlimited” holdings of it…

By: Anonymous

Anonymous — Wed, 16 Jul 2008 02:08:00 +0000

We should win the war.

By: mmm

mmm — Wed, 16 Jul 2008 01:33:00 +0000

9:17, How does GSE gearing have anything to do with “reason for a Republic”? This is about our love affair with houses and profligate use of debt to pursue same.

By: Anonymous

Anonymous — Wed, 16 Jul 2008 01:26:00 +0000

It is not politically correct to bring any of this up but would we even be having these discussions if the Bushies/Neocons and actually won the war in Iraq and we had stolen their oil fair and square back in 2003.

Oil probably would be at $30 a barrell.

Alas, losing a war (or not winning it outright) certainly seems to have consequences.

By: Anonymous

Anonymous — Wed, 16 Jul 2008 01:21:00 +0000

No offence Yves, but if America is now reduce to defending its reason for Republic to a formula of, �total gearing including guarantees 41.5x to common, 23.7x to total equity. But that’s a lot better than the current 128.9x and 68.7x, respectively�, is it not only financially bankrupt and internationally bankrupt but also intellectually bankrupt?