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TAX CUTS.
MORE ON THAT LATER.
BACK TO YOU.
>>> NEW DETAILS EMERGING OVER
THE GOVERNMENT'S PLAN TO WIND
DOWN FANNIE AND FREDDIE.
A DECISION THAT COULD IMPACT
INVESTORS LARGE AND SMALL.
KATE KELLY IS HERE WITH THE
LATEST.
KATE?
>> THANKS, SCOTT.
A BIPARTISAN PROPOSAL CAME OUT
OF WASHINGTON YESTERDAY THAT
COULD EFFECTIVELY END FANNIE AND
FREDDIE REPLACING THE HOUSING
INSURERS WITH A NEW SET OF
AGENCIES THAT WOULD PUT THE
PRIVATE SECTOR ON THE HOOK FIRST
IF THE LOANS STARTED TO
COLLAPSE.
THIS IS BAD NEWS FOR WALL STREET
WHERE THE THINLY TRADED COMMON
STOCKS OF THE TWO NAMES AND
PREFERRED SHARES HAD BEEN HEDGE
FUND DARLSINGS.
PERSHING SQUARE'S BILL ACKMAN
AND BRUCE BERKOWITZ TOOK
ENORMOUS HITS YESTERDAY ON THESE
DOUBLE DIGIT PERCENTAGE
DECLINES.
THE IMPACT ON THE PREFERRED
SHARES AT LEAST INITIALLY TO
THIS SENATE PROPOSAL AND THESE
ARE HELD IN LARGE SKIZ BY PERRY
CAPITAL AND PAULSON AND COMPANY
AS WELL AS OTHERS, WAS FAR LESS.
THE PREFER EVERY DAYS WERE MUCH
FLATTER YESTERDAY.
PERRY AND FAIRHOME SUED CHARGE
THAT THEIR HANDLING OF FANNIE
AND FREDDIE ARE UNLAWFUL.
THEY ARGUE THE GOVERNMENT'S
BACKING OF THE U.S. MORTGAGE
SYSTEM IS MORE ESSENTIAL THAN
EVER.
WHETHER THEY WILL PREVAIL UNDER
THIS NEW PRESSURE, SCOTT,
REMAINS TO BE SEEN.
THERE IS A LOT OF DOUBT AS TO
WHETHER THIS PROPOSAL CAN GET
THE VOTES NEEDED.
IT STILL REMAINS A I DON'T KNOW
CONTROVERSIAL ISSUE.
>>> WE DO HAVE OPINION ON BOTH
SIDES.
SENATOR WARNER, CONSUMER
ADVOCATE RALPH NADER OWNS SHARES
IN FANNIE AND FREDDIE.
WE'RE GOING TO HEAR FROM HIM IN
A MOMENT.
SENATOR, GOOD TO HAVE YOU ON THE
"HALFTIME" SHOW.
>> THANKS FOR HAVING ME ON.
>> WHY NOT LET FANNIE AND
FREDDIE RECAPITALIZE AND
RECOVER?
>> SCOTT, LET'S STEP BACK FOR A
SECOND.
YOU KNOW, FOUR OR FIVE YEARS AGO
THESE ENTITIES WERE GOING DOWN
THE TUBES.
THE TAXPAYER STEPPED IN FOR $188
BILLION.
YES, THEY'VE RECOVERED.
BUT WE HAD A SYSTEM THAT WAS NOT
JUST SUSTAINABLE.
WE WERE UNSURE WHETHER THERE WAS
AN EXPLICIT GOVERNMENT
GUARANTEE.
YOU HAD PRIVATE SHAREHOLDER
GAIN.
WHEN STUFF HITS THE FAN TAXPAYER
LOSSES, THAT IS NOT A
SUSTAINABLE SYSTEM.
YOU'VE GOT MANY IN CONGRESS WHO
WANT TO GET THE GOVERNMENT
COMPLETELY OUT OF THE HOUSING,
MARKETPLACE THAT WOULD
COMPLETELY DESTROY THE 30-YEAR
FIX AND CAUSE GREAT DISRUPTION.
WE COME WITH A BIPARTISAN PRO
SOESAL AND STARTED WITH TEN
SENATORS, FVE Ds, FIVE Rs.
WE HAD TEN SEPARATE HEARINGS ON
THIS.
EVERYTHING FROM THE ACTUAL
HOUSING INDUSTRY HAS ROUGHLY ON
A 1-10 SCALE GIVEN OUR PROPOSAL
8-9.
WE HEARD NOTHING IN THE TEN
HEARN HEARINGS WE HAD THAT
DIDN'T SAY WE WERE HEADED IN THE
RIGHT DIRECTION.
YES, WE SAY THERE OUGHT TO BE
MORE PRIVATE CAPITAL UP FRONT.
WE MAINTAIN THE 30-YEAR FIX.
WE MAINTAIN THE FUNDING FOR
FIRST-TIME HOME BUYERS AND
LOW-INCOME HOME BUYERS WITH AN
A. DEFINED SYSTEM.
WE THINK THIS IS SOMETHING THAT
ACTUALLY WE MAY SURPRISE SOME
FOLKS.
THIS IS COMMON SENSE, LET'S GET
THIS LAST PIECE OF THE FINANCIAL
REFORM IN PLACE.
YES, I UNDERSTAND THERE'S BEEN
SOME VOLATILITY IN THE MARKET.
I WOULD REMIND THE VIEWERS
THOUGH, THESE SHARES SINCE THEY
WERE BASICALLY WORTHLESS HAVE
GONE UP I THINK 1600% ON
SOMETHING THAT IS GOING TO BE
LITIGATED IN THE COURT.
THEY TOOK A HIT YESTERDAY.
BUT MOST OF THE FOLKS WHO
INVESTED EARLY ARE STILL LOOKING
AT MASSIVE PROFITS.
>> THEY ARE.
AND THEY WOULD MAKE THE ARGUMENT
WITH RESPECT, SENATOR, THERE ARE
MORE PROFITS LIKELY TO BE MADE
IF THESE THINGS AR ALASKA LOUED
TO BE RECAPITALIZED.
>> LET ME FINISH.
>> LET ME MAKE ANOTHER POINT.
>> SURE.
>> RALPH NADER IS GOING TO
FOLLOW YOU.
HE WOULD SAY, WHAT'S THE
DIFFERENCE BETWEEN FANNIE,
FREDDIE, AIG, AND CITI?
THEY WERE ALLOWED TO GET BACK.
THEY WERE BAILED OUT.
THEY WERE ALLOWED TO GET BACK ON
THEIR FEET.
SHAREHOLDERS WERE ALLOWED TO
REAP THE REWARDS OF THE RECOVERY
OF THOSE TYPES OF ENTITIES.
SO WHY NOT IN THIS CASE?
>> SCOTT, UNLIKE THE OTHERS, WE
ENDED UP HAVING TO BACK THOSE.
HOPEFULLY WHAT WE'VE DONE IN
DODD FRANK IS MAKE SURE WE'VE
GOT A RESOLUTIONIBILITY TO NEVER
DO THAT AGAIN.
THE DIFFERENCE IS YOU'VE GOT
THAT GOVERNMENT GUARANTEE.
WHAT I DON'T HEAR FROM SOME OF
THE CRITICS WHO ARE -- I
UNDERSTAND THEY'VE GOT A
FINANCIAL INTEREST THEY WANT TO
MAKE MONEY ON.
THAT'S AMERICAN CAPITALISM.
HAVE IT AT IT.
YOU'VE GOT AN EXPLICIT
GOVERNMENT GUARANTEE.
YOU HAVE PRIVATE SHAREHOLDER
GAIN AND PUBLIC SHAREHOLDER LOSS
WHEN WE GO THROUGH A DIP, ARE
THEY GOING TO BE RECAPITALIZE AS
FOR-PROFIT ENTITIES, NOT FOR
PROFIT ENTITY, SECURITIZATION
DONE AND THE BACKSTOP, AT THE
ENTITY LEVEL, AT THE SECURITY
LEVEL?
AND QUITE HONESTLY, I THINK THE
SYSTEM THAT WAS SET UP WITH THIS
KIND OF QUASI-DUOPOLY WAS THERE
AT THE OUTSET.
MR. NADER TO THE HEDGE FUND
GUYS, THEY OUGHT TO HAVE THEIR
DAY IN COURT.
>> SURE, I MEAN, TO YOUR --
>> HAVE THEIR DAY IN COURT.
FROM A POLICY PERSPECTIVE,
ANYBODY THAT THINKS THAT THE
STATUS QUO IS VIABLE WHEN YOU'VE
GOT ENORMOUS PRESSURES TO MOVE
THE GOVERNMENT OUT OF HOUSING, I
THINK DOESN'T HAVE A CONNECTION
TO THE POLICY AND POLITICAL
REALITY WE LIVE WITH RIGHT NOW.
>> TO YOUR POINT, SENATOR, BRUCE
BERKOWITZ OF FAIR HOME, I'M SURE
YOU'RE FAMILIAR WITH HIM AND HIS
PROPOSAL HERE.
HE SENDS A STATEMENT TO ME THAT
SAYS THE FOLLOWING.
I'D LIKE YOUR REACTION TO IT IF
YOU WOULD, OP BLIGE.
WHAT HAPPENED BEFORE 2008 WAS
THE RESULT OF REGULATORY AND
MANAGEMENT FAILURES ACCELERATED
BY POLITICAL MEDDLING.
HE SAYS.
THESE FAILURES CONTINUE TODAY
WITH THE UNLAWFUL DEPLETION OF
THE ENTITIES CAPITAL IN
CONSERVATORSHIP, PRIVATELY-OWNED
FANNIE AND FREDDIE ARE
IRREPLACEABLE.
ALL THE SINCERE EFFORT BY THE
SENATE BANKING COMMITTEE SIMPLY
CONFIRMS THERE IS NO BETTER
ALTERNATIVE.
>> I THINK HE HAS NOT FOLLOWED
THE TEN HEARINGS WITH THE
EXCEPTION OF HIS TESTIMONY.
LET'S PUT MORE PRIVATE CAPITAL
AT RISK, LET'S MAKE SURE WE ARE
EXPLICIT ABOUT THE GOVERNMENT
BACKSTOP, CHARGE FOR IT IN A
WAY, MAKE SURE WE'VE GOT THE
PRIVATE POLICY HOLES INSTEAD OF
THE NEB PLUS APPROACH WE'VE GOT
RIGHT NOW.
THE FOLKS THAT CURRENT STATUS
QUO WE HAVE VIRTUALLY NO PRIVATE
CAPITAL.
SOCIALIZED GOVERNMENT SUPPORTED
SYSTEM.
>> HEDGE FUNDS ARE MAKING THE
ARGUMENT THAT A SYSTEM WITH
PRIVATE CAPITAL ON THE HOOK IN
PART THEIRS IS THE WAY TO GO.
MAYBE THE FIRST 10% TO 12% OF
LOSSES WOULD BE ABSORBED BY
INVESTORS THEMSELVES.
>> SCOTT, I'M GLAD YOU RAISE
THAT POINT BECAUSE THAT'S
EXACTLY WHAT WE SAY.
PRIVATE CAPITAL NEEDS TO BE --
DOES A MUCH BETTER JOB THAN THE
GOVERNMENT OF PRICING BOTH
INTEREST RATE RISK AND CREDIT
RISK.
LET'S LET BRUCE AND THE OTHERS
SET UP THESE BOND GARNTORS
BEFORE WE HIT THE FDIC TYPE
REASSURANCE FUND.
THEY'VE GOT TO ROLL THE PLATE IN
A NEW SYSTEM BUT IN A SYSTEM
RIGHT NOW WHERE THERE'S ONLY
PRIVATE SIDE UPSIDE AND DOWNSIDE
IS ABSORBED BY THE PUBLIC IS,
YOU KNOW, I DON'T THINK PASSES
THE SMELL TEST.
I WOULD ALSO SAY FOR THOSE WHO
SAY, LOOK, THEY MADE THEIR MONEY
BACK.
I WAS IN THE VENTURE CAPITAL
BUSINESS A LOT LONGER THAN AN
ELECTED OFFICIAL.
IF I PUT THE MONEY TO WORK IN
THE BOTTOM OF THE CRISIS, AS AN
INVESTOR I WOULD WANT MORE THAN
A 1-1 RETURN.
WHAT BEYOND THAT WILL BE
OBVIOUSLY BRUCE AND THE OTHERS
WILL HAVE A CASE IN FRONT OF THE
COURTS.
THAT OUGHT TO BE LITIGATED.
THEY'LL HAVE THEIR DAY IN COURT.
IT SHOULD NOT SLOW THE REFORM OF
A CURRENT POLICY THAT EVERYBODY
ACROSS THE INDUSTRY KNOWS AND
BELIEVES IS UNSUSTAINABLE.
>> LOOK, I KNOW AND I HEAR FROM
THESE SHAREHOLDERS WHO SAY, YOU
KNOW, THEY'RE WILLING TO PROVIDE
THE NEW CAPITAL TO A PRIVATE
MARKET SOLUTION IF THEY'RE
ALLOWED TO DO SO.
I'VE GOT TO RUN, SENATOR.
>> SCOTT, THAT IS WHAT OUR BILL
DOES.
I REMEMBER THESE GUYS OUGHT TO
READ THE BILL.
>> MY LAST QUESTION.
I'VE GOT TO RUN.
CAN THIS PASS CONGRESS?
>> I THINK IT WILL BECAUSE IF
THERE'S EVER A CHANCE I GOT
BIPARTISAN SUPPORT, WIDE BASED
INDUSTRY AND ADVOCATE SUPPORT,
IF NOT, THIS SYSTEM IS MORE
BROKEN THAN I THOUGHT.
>> SENATOR, THANK YOU FOR
SPENDING TIME WITH US TODAY.
>> THANKS.
ALL RIGHTY.
>>> LET'S GET REACTION NOW TO
THIS FROM RALPH NADER.
HE IS A LONG-TIME CONSUMER
ADVOCATING ACTUALLY OWNS THE
STOCKS.
HE'S ALSO THE AUTHOR OF THE NEW
BOOK "UNSTOPPABLE."
MR. NADER, THANK YOU FOR COMING
ON.
I PRESUME YOU HEARD THE SENATOR
HERE.
WHAT'S YOUR REACTION?
>> WELL, FIRST, THE REAL BILL OF
JOHNSON PRESS RELEASE SO WE
DON'T KNOW ALL THE DETAILS.
FROM WHAT WE DO KNOW A LOT OF
THE REFORMS CAN BE DONE WITH THE
EXISTING FANNIE MAE AND FREDDIE
MAC STRUCTURE.
THE TWO COMPANIES ARE MAKING A
LOT OF MONEY.
THEY EXUDE STABILITY FOR THE
REAL ESTATE INDUSTRY.
THEY ARE PROJECTED TO MAKE A LOT
OF MONEY.
THEY KNOW HOW TO DO THEIR
BUSINESS.
THEY CAN BE REFORMED INTO A
PUBLIC UTILITY MODEL AND STILL
PROTECT THE SHAREHOLDERS.
I DON'T THINK THIS BILL IS GOING
ANYWHERE BECAUSE UNLESS THE
POWERFUL REAL ESTATE LOBBY AND
THE HOUSING LOBBY BACK IT, IT'S
DEAD IN THE WATER.
>> YOU HAVEN'T JOINED THE
LAWSUIT OF SOME OF THE OTHER
LARGE SHAREHOLDERS HAVE YOU?
>> NO.
>> WHY NOT?
>> BECAUSE THEY'RE CARRYING THE
WEIGHT ON THIS AND THEY'RE
PAYING THEIR LAWYERS.
SO IT WOULD JUST BE REDUNDANT.
I KNOW KNOW ONE THING.
THERE ARE TOO MANY UNKNOWNS WHEN
YOU UNRAVEL THE BOW WORK BEHIND
THE HOUSING INDUSTRY, FANNIE AND
FREDDIE.
TOO MANY UNKNOWNS MEANS TO THE
BUSINESS COMMUNITY INSTABILITY,
IT MEANS INSECURITY, IT MEANS
THEY DON'T KNOW WHAT'S GOING TO
WORK, WHO THE PLAYERS ARE GOING
TO BE.
IN THE MEANTIME, FANNIE AND
FREDDIE ARE CHURNING IT OUT,
THEY'RE MEETING THE NEEDS,
THEY'VE GOT AN AFFORDABLE
HOUSING MANDATE, WHICH IS VERY
IMPORTANT AND VERY SPECULATIVE
AND WHAT SENATOR WARNER'S
PROPOSAL VOVLSZ AND THERE'S A
CHANCE FOR THE SHAREHOLDERS TO
RECOVER AFTER BEING DECEIVED IN
2008 BY PAULSON AND THE
REGULATOR AND BERNANKE WHO TOLD
THEM IN THE SUMMER OF 2008,
DON'T WOR RIRKS EVERYTHING IS
OKAY.
FANNIE AND FREDDIE ARE
CAPITALIZED.
THE TAXPAYER WILL BE FULLY
REIMBURSE WITH PROFIT AND THE
OTHER -- THE OTHER FACTOR IS, IF
THE SHAREHOLDERS DON'T GET THE
FUTURE PROFITS OF FANNIE AND
FREDDIE, THE PEOPLE WHO WANT TO
REDUCE THE FEDERAL DEFICIT WILL
SUPPORT FANNIE AND FREDDIE
BECAUSE BY THE CBO $180 BILLION
IN THE NEXT TEN YEARS.
IT'S GOING NOWHERE IN THE
CONGRESS.
>> MR. NADER, IT'S KATE KELLY
HERE.
I THOUGHT SENATOR WARNER SAID
SOMETHING INTERESTING.
HE SORT OF THREW A BONE TO THE
FAIR HOMES AND THE PERRY
CAPITALS AND PERHAPS COMMON
INVESTORS LIKE YOURSELF AS WELL,
SAYING THERE IS A LEGAL ISSUE, A
REAL ONE DEALING WITH THE SWEEP
AMENDMENT OF 2012 AND WHETHER OR
NOT THAT WAS LAWFUL AND THAT
OUGHT TO CYCLE THROUGH THE
COURTS.
DID THAT NOTION SURPRISE YOU
COMING FROM HIM?
>> IT SHOWED THAT THEY RECOGNIZE
THE EQUITY OF THE LONG-TERM
SHAREHOLDER OS FANNIE AND
FREDDIE WHO WERE TOLD IT'S THE
SAFEST INVESTMENT AFTER
TREASURIES.
BUT WHAT HE DIDN'T SAY IS THE
FOLLOWING.
IF THEY DISMANTLE AND REPLACE
FANNIE AND FREDDIE, HOW ARE THIS
COURTS GOING TO RULE WHEN THE
GIVER OF EQUITY TO THE
SHAREHOLDERS IS DISAPPEARING?
>> SO IT'S ESSENTIALLY A MOOT
POINT?
>> NOTHING IS GOING TO HAPPEN
UNTIL AFTER 2016.
IT'S TOO HOT FOR THE
POLITICIANS.
THE PEOPLE BACK HOME, THE REAL
ESTATE AGENTS, ALL THE POWERFUL
FORCES, THEY KNOW WHAT FREDDIE
AND FANNIE CAN DO.
THEY'RE DOING IT.
THEY ARE MAKING A PROFIT.
THEIR STABILITY.
THEY'RE NOT GOING TO ROCK THE
BOAT.
IT'S NOT GOING TO GO ANYWHERE IN
CONGRESS.
>> MR. NADER, YOU OWN 50,000
SHARES OF EACH OR COMBINED HERE?
>> EACH.
>> OKAY.
WELL, YOU GOT A LOT AT STAKE, AS
DO A LOT OF OTHER INVESTORS.
WE APPRECIATE YOU COMING ON AND
SHARING YOUR VIEWS WITH US.
>> THOSE ARE LONG-TIME HOLDINGS,
BEFORE 2008.
THAT'S WHY THE DECEPTION FACTOR
IS SO IMPORTANT.
>> UNDERSTOOD.
THANKS, SIR.
>> YOU'RE WELCOME.
>> WE'LL TALK TO YOU AGAIN SOON.
>>> UP NEXT, IS THE MARKET'S
HOTTEST SECTOR IN A BUBBLE?
BIOTECH IS UP MORE THAN 30% OVER
THE PAST THREE MONTHS.
FIND OUT WHY ONE TRADER IS
STARTING TO SEE CRACKS.
>>> IT'S BEEN FIVE YEARS SINCE
BERNIE MADOFF PLED GUILTY.
WE'LL IDENTIFY THE LEG FLAG YOU
NEED TO WATCH OUT FOR.
IT'S HARD TO BELIEVE THAT TODAY
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