It has been some time since my last Forbes column on Fannie and Freddie. After eight weeks in Court, it appears as though the AIG trial, in which former AIG CEO Maurice (“Hank”) Greenberg is mounting a challenge to recover some $40 billion for shareholders from the United States, by attacking all the steps in the multi-billion U.S. bailout, initiated in September 2008, which started at $85 billion, but may have run to as much as $180 billion by May 2009. While separate arguments, there are some instructive elements to contrast the developments in the ongoing AIG dispute with those in connection with the multiple lawsuits brought by the private shareholders (both junior preferreds and common) of Fannie Mae and Freddie Mac against both the Federal Housing Finance Authority (FHFA) and the United States Treasury.
That comparison in turn sets the stage for discussion of two other issues: the recent motion by the Rafter litigation plaintiffs (including Pershing Square Capital Management), as friends of the court and holders of Fannie and Freddie common stock, in opposition of the government’s motion to stay discovery in Fairholme’s takings claim before Judge Margaret Sweeney in the Court of Federal Claims (CFC) and a recent statementby Sen. Tim Johnson (D-SD), the outgoing chairman of the Senate Banking Committee that:
“Everyone agrees that conservatorship cannot continue forever, so I hope my colleagues will keep working towards a more certain future for the housing market. However, if Congress cannot agree on a smooth, more certain path forward, I urge you, Director Watt, to engage the Treasury Department in talks to end the conservatorship.”
All these points are interrelated. As ever, I write about these issues as an advisor to several institutional investors with an interest in Fannie and Freddie. I have no similar involvement with AIG.
Read on.