Saturday, February 7, 2015

Berkowitz on Fannie Mae

Berkowitz likened the amending of the bailout terms to a farmer whose farm was successful for decades, but when a drought came, was forced to accept an offer from a wealthy neighbor who was willing to loan the farmer money to keep the farm going. The deal he negotiated was tough, however – the farmer pays the neighbor 10 percent interest per year on his investment and gives him 80 percent ownership in the farm. Years later, when the farm conditions are better and the farm returns to profitability, the wealthy neighbor visits the farm and sees it flourishing – then changes the terms of the agreement, requiring the farmer to pay him 100 percent of the farm's profits from that point forward.
"It seems far-fetched, but this is precisely what has happened to Fannie Mae and Freddie Mac at the hands of the U.S. Treasury," Berkowitz said. "Some call it expropriation, others call it a de facto nationalization. Either way, it's illegal and unfathomable. This is America. We're not in Venezuela and it's not the Soviet Union."
A spokesman for Treasury declined to comment on the Fairholme suit, and the Department of Justice was not immediately available for comment. The government's position is that Treasury did not directly affect and control FHFA as conservator of Fannie Mae and Freddie Mac, and that the amending of the bailout terms was not illegal but rather "imposed a so-called net sweep," according to Berkowitz.
Berkowitz remained positive in the conference call about his company's future relationship with the GSEs.
"At Fairholme, we believe in America," he said. "We don’t bet against America. Fannie and Freddie are two of the most valuable companies we have in America. We own them, we own them at cheap prices, and we look forward to staying invested in them for a very long period of time."

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