WEBVTT - Sick and Aging Trees: GSE, MBA, ICE 0:00:02.720 --> 0:00:07.200 Bloomberg Audio Studios, podcasts, radio news. 0:00:09.480 --> 0:00:11.559 Yeah, it turns out, you know, if you google how 0:00:11.600 --> 0:00:13.680 to defrost a bagel and it tells you to run 0:00:14.040 --> 0:00:17.040 it under cold water for thirty seconds, that is an 0:00:17.120 --> 0:00:20.840 unnecessary step. Not only is it unnecessary, I would not 0:00:20.880 --> 0:00:23.959 recommend it, it produces a disgusting result. 0:00:24.560 --> 0:00:27.240 Yeah. No, your mistake was giggling instead of asking your 0:00:27.360 --> 0:00:30.680 local suburban jew who would tell you right answer. 0:00:31.240 --> 0:00:33.880 Or just ask you know that you could go that route, 0:00:33.960 --> 0:00:38.319 or just ask your podcast co host because everyone has 0:00:38.320 --> 0:00:38.639 one of. 0:00:38.600 --> 0:00:44.720 Those, and I'm facing important life decisions that my first 0:00:44.720 --> 0:00:47.640 thought is I should ask my podcast cast about those. Yes, 0:00:47.760 --> 0:00:48.800 at that's true. 0:00:49.280 --> 0:00:54.560 It's practical for most tests. So this actually isn't our 0:00:54.600 --> 0:00:55.680 first episode of the year. 0:00:56.160 --> 0:00:59.480 It's not our first episode to air this year. That's true. 0:00:59.680 --> 0:01:02.000 And we did pretend that we recorded the last episode 0:01:02.040 --> 0:01:04.440 this year, although we didn't keep up that pretence for 0:01:04.520 --> 0:01:04.880 very long. 0:01:05.160 --> 0:01:08.600 I think we tricked everyone. Actually, of course that worked 0:01:08.640 --> 0:01:09.160 really well. 0:01:10.160 --> 0:01:14.440 Hello and welcome to the second Money Stuff podcast of 0:01:14.480 --> 0:01:19.199 twenty twenty five, your weekly podcast where we talk about 0:01:19.240 --> 0:01:21.720 stuff related to money. I'm Matt Levin, and I write 0:01:21.720 --> 0:01:24.280 the Money Stuff column for Bloomberg Opinion, And. 0:01:24.240 --> 0:01:26.800 I'm Katie Greifeld, a reporter for Bloomberg News and an 0:01:26.840 --> 0:01:28.280 anchor for Bloomberg Television. 0:01:28.520 --> 0:01:29.959 What are you talking about today, Katie? 0:01:30.280 --> 0:01:33.559 Today we're going to talk about Fanny May, Freddie Mack, 0:01:33.640 --> 0:01:36.440 and friend of the show Bill Lackman. We're going to 0:01:36.480 --> 0:01:41.399 talk about MBA students and when case studies become real life. 0:01:41.800 --> 0:01:53.040 And then we're going to talk about cocoa liquidity, Fanny 0:01:53.080 --> 0:01:57.960 and Freddy. Fanny and Freddy. So this trade is once 0:01:58.000 --> 0:02:00.960 again being resurrected and has some legs again. There's a 0:02:00.960 --> 0:02:06.320 lot of optimism out there that maybe finally these two 0:02:06.400 --> 0:02:08.360 are going to end up in private hands again. 0:02:09.240 --> 0:02:11.520 Yeah. I used to write about this a lot and 0:02:11.560 --> 0:02:14.440 then everyone kind of forgot about it, and I wrote 0:02:14.440 --> 0:02:16.960 about it this weekend. I was like, I gotta start 0:02:16.960 --> 0:02:19.239 from scratch. I gotta be like, what is Fanny and Freddy. 0:02:19.520 --> 0:02:21.040 I'm not sure we'll do that on the podcast, but 0:02:21.120 --> 0:02:24.360 we could. Is what are Fanny and Freddy? Fanny and 0:02:24.400 --> 0:02:30.880 Freddy were the big mortgage guarantee companies that were technically 0:02:31.240 --> 0:02:34.000 regular publicly traded companies, but everyone kind of thought they 0:02:34.040 --> 0:02:36.079 were backed by the government up until two thousand and 0:02:36.120 --> 0:02:38.919 eight when they went busted on some bad mortgage bets 0:02:38.960 --> 0:02:41.200 and then the government took them over, and it turns 0:02:41.200 --> 0:02:43.200 out they were in fight back by the government, and 0:02:43.240 --> 0:02:46.320 so everyone who relied on Fanny guarantees to get their 0:02:46.360 --> 0:02:50.200 mortgages paid back got their mortgages paid back, and the 0:02:50.280 --> 0:02:53.800 government took over Fanny and Freddy, and shareholders of Fanny 0:02:53.800 --> 0:02:56.440 and Freddy the day after the government takeover looked like 0:02:56.480 --> 0:02:59.639 they had lost pretty much everything, but not literally everything. 0:03:00.120 --> 0:03:02.919 And then later in twenty twelve, the government said, you 0:03:02.960 --> 0:03:05.160 know what, they've lost everything. And so they've now been 0:03:05.200 --> 0:03:08.720 like fully owned by the government more or less for 0:03:09.560 --> 0:03:13.680 I say, twelve and a half years now, and in 0:03:13.720 --> 0:03:15.680 that time people have spent kind of that whole time 0:03:15.720 --> 0:03:18.560 being like, obviously this can't last, and Fanny and Freddy 0:03:18.600 --> 0:03:21.600 have to return to private hands anytime now, and a 0:03:21.680 --> 0:03:23.880 lot of people have made that bet in the form 0:03:23.919 --> 0:03:26.799 of buying the stock of Fanny and Freddie, which still 0:03:26.840 --> 0:03:30.240 trades over the counter, and saying when they returned to 0:03:30.240 --> 0:03:32.240 private hands, the stock is going to be really valuable. 0:03:32.639 --> 0:03:36.240 And they filed some lawsuits that didn't really work out 0:03:36.320 --> 0:03:38.920 a long time ago, but now you know Trump is 0:03:38.960 --> 0:03:42.640 coming back to office, and the same logic applies that 0:03:42.680 --> 0:03:46.080 they can't be publicly owned forever. Maybe, And so Bill 0:03:46.160 --> 0:03:48.240 Ackman is the latest. He brought up a lot of 0:03:48.280 --> 0:03:50.880 Fanny and Freddy common stock and has been tweeting about 0:03:50.880 --> 0:03:53.480 how Trump is going to return them to private hands 0:03:53.480 --> 0:03:54.640 and they're going to be worth a lot of money. 0:03:54.840 --> 0:03:56.360 And that's the news. 0:03:56.760 --> 0:04:00.880 I did see a snarky tweet. Yeah, well, this one 0:04:01.440 --> 0:04:04.000 still can't get over the name brand hedge fund manager 0:04:04.080 --> 0:04:07.560 pumping his decade hold thin. They traded GSC bags on 0:04:07.600 --> 0:04:10.840 the last trading day, which is kind of what happened. 0:04:10.880 --> 0:04:13.800 I mean, oh yeah, but like to be clear, like yes, 0:04:13.920 --> 0:04:17.520 like he is talking about this trade on Twitter on 0:04:17.880 --> 0:04:19.960 x and that has the effect that like retail traders 0:04:19.960 --> 0:04:21.920 see it and the stock goes up. Like the play 0:04:21.960 --> 0:04:23.919 here is not that he pumps it and the stock 0:04:23.960 --> 0:04:26.000 goes up and he sells into this retail demand. The 0:04:26.040 --> 0:04:28.359 play here is obviously that he wants this to happen. 0:04:28.600 --> 0:04:32.520 He's not writing these tweets to retail investors. He's writing 0:04:32.560 --> 0:04:36.440 these tweets to Donald Trump and Elon Musk and like 0:04:36.480 --> 0:04:38.960 the other Donald Trump advisors who will decide what happens 0:04:39.000 --> 0:04:41.240 to Fanny and Freddy, because like it is true that 0:04:41.279 --> 0:04:43.479 like something has to happen to Fanny and Freddy, and sorry, 0:04:43.520 --> 0:04:45.839 it's not true. They could do nothing. I have argued 0:04:45.880 --> 0:04:49.159 for twelve years now that it's fine. It's totally fine. 0:04:49.200 --> 0:04:51.520 The status quo is fine. These are policy arms of 0:04:51.560 --> 0:04:53.919 the government. They're like, essentially like the government's way of 0:04:53.960 --> 0:04:58.719 guaranteeing thirty year fixed rate refinanciable mortgages. There are a 0:04:58.720 --> 0:05:02.119 way that the government supports the house market. And they've 0:05:02.279 --> 0:05:04.919 you know, historically been implicitly backed by the guarantee of 0:05:04.920 --> 0:05:07.039 the US government, and now they're explicitly backed by like 0:05:07.040 --> 0:05:10.040 they're owned by the US government, and there is not 0:05:10.200 --> 0:05:13.520 really anything terrible happening from the fact that they're not 0:05:13.560 --> 0:05:15.560 in private hands. I've said this for years that people 0:05:15.600 --> 0:05:17.560 are like, oh, actually, this is a terrible thing. There 0:05:17.560 --> 0:05:20.520 are various problems that come from them being in government ownership. 0:05:20.680 --> 0:05:22.640 But it keeps working, you know, it keeps being kind 0:05:22.640 --> 0:05:25.440 of fine, so they don't really need to do anything. 0:05:25.480 --> 0:05:27.240 But it's just it seems clear that like this Trump 0:05:27.240 --> 0:05:30.360 administration last time did want to get them into private hands, 0:05:30.400 --> 0:05:32.600 and they kind of ran out of time, and now 0:05:32.600 --> 0:05:34.320 they have four more years and like they're a little 0:05:34.360 --> 0:05:36.840 less constrained, and so they will probably do it. And 0:05:36.920 --> 0:05:40.960 so it behooves Bill Ackman to get on X not 0:05:41.120 --> 0:05:43.880 to tell retail investors to go buy the stock, but 0:05:43.960 --> 0:05:47.640 to tell the Trump administration, oh, don't forget to privatize 0:05:47.640 --> 0:05:49.880 Fanny Man and Freddie back and give them back to 0:05:49.960 --> 0:05:53.120 their existing shareholders, who include probably a lot of like 0:05:53.640 --> 0:05:57.080 retail investors maybe who've held them since two thousand and four, 0:05:57.200 --> 0:06:00.640 but maybe who bought them last week, but also clear Blackman, 0:06:00.680 --> 0:06:02.880 who would probably make a lot of money if they 0:06:02.880 --> 0:06:04.240 were handed back to shareholders. 0:06:04.400 --> 0:06:07.279 Yeah, he estimates he could make like a twelve hundred 0:06:07.320 --> 0:06:10.640 percent return on this. Sure, that's his math. 0:06:10.720 --> 0:06:12.919 Yeah, I mean like conceptually, if you look at the 0:06:13.240 --> 0:06:16.520 technical cash flow water flow of these companies, the stock 0:06:16.560 --> 0:06:19.320 is worth zero dollars, right, And it's like that exactly right, 0:06:19.320 --> 0:06:20.800 But it's like it's kind of right. It's basically like 0:06:20.960 --> 0:06:23.279 the way these companies work is that every dollar they 0:06:23.360 --> 0:06:25.679 make for the rest of time goes to the US government, 0:06:25.839 --> 0:06:28.120 and then after that the shareholders get something. Right, So 0:06:28.160 --> 0:06:30.960 like there's no cash flows to the shareholders and everyone 0:06:31.000 --> 0:06:34.520 just assumes that that deal will be changed for reasons, 0:06:34.839 --> 0:06:37.080 either reasons of like, oh, it's not fair to the shareholders, 0:06:37.120 --> 0:06:38.839 or reasons of like, we do need to get private 0:06:38.839 --> 0:06:40.279 capital back, and the only way to do that is 0:06:40.320 --> 0:06:42.320 to like give something back to the shareolders. But like 0:06:42.400 --> 0:06:46.120 right now, like the sort of like legal official value 0:06:46.120 --> 0:06:48.040 of the cash flows to Fanny and Freddie sholders is 0:06:48.120 --> 0:06:50.640 zero dollars, and so Bi Lackman is buying the stock 0:06:50.680 --> 0:06:52.920 at like, you know, a low price, not zero dollars, 0:06:52.960 --> 0:06:55.920 but like a low price reflecting the uncertainty about whether 0:06:55.920 --> 0:06:58.800 they'll ever get cashlows. His thesis is you should just 0:06:58.839 --> 0:07:01.640 stop that. You should forgive what is now something like 0:07:01.640 --> 0:07:04.880 three hundred and forty billion dollars of nominal debt to 0:07:04.920 --> 0:07:07.160 the government, and you just say, actually, all the profits 0:07:07.200 --> 0:07:09.200 from now and go to the shareholders instead of the government. 0:07:09.320 --> 0:07:11.800 Like yeah, that's a big difference. Giving them three hundred 0:07:11.800 --> 0:07:14.240 and forty billion dollars would make them much much, much, 0:07:14.280 --> 0:07:15.360 much much more valuable. 0:07:15.440 --> 0:07:17.880 Something that I was hoping that you could explain to 0:07:17.920 --> 0:07:20.760 me is like, let's say that the status quo persists 0:07:20.880 --> 0:07:23.560 that the assumption that you know they will be returned 0:07:23.560 --> 0:07:26.960 to private hands actually doesn't end up coming true. You 0:07:27.040 --> 0:07:29.360 wrote that as it is right now, they don't have 0:07:29.400 --> 0:07:31.360 to pay their income in cash to the government, but 0:07:31.480 --> 0:07:34.720 each increase in net worth adds to the amount that 0:07:34.760 --> 0:07:37.280 they owe to the government, so they still can't pay 0:07:37.280 --> 0:07:40.840 off the debt. If they never returned to private hands, 0:07:41.080 --> 0:07:44.200 could they ever get out of this hole? Like how 0:07:44.240 --> 0:07:45.000 does that work? 0:07:45.360 --> 0:07:47.440 There's no hole. They're just owned by the government. With 0:07:47.480 --> 0:07:50.480 the way it works now is that every increase in 0:07:50.520 --> 0:07:53.280 the net worth of Fanny and Freddy goes to the government, 0:07:53.440 --> 0:07:56.320 which is what happens when the government owns one hundred 0:07:56.320 --> 0:07:59.160 percent of Fanny and Freddy. There's no hole, like there's nominally, 0:07:59.200 --> 0:08:02.480 like there's a number that is like nominally the debt 0:08:02.520 --> 0:08:05.360 that they owe to the government. It's technically preferred stock, 0:08:05.440 --> 0:08:07.720 not debt. It's like junior to the actual debt, like 0:08:07.760 --> 0:08:10.040 you know, the mortgage guarantees. But the amount that they 0:08:10.040 --> 0:08:12.520 owned the government goes up every time their value goes up, 0:08:12.560 --> 0:08:14.320 which is a way to make sure that the government 0:08:14.360 --> 0:08:16.440 continues to own one hundred percent of their cash. Lists. 0:08:16.480 --> 0:08:18.640 But there's no like hole, like nothing bad happens to 0:08:18.680 --> 0:08:20.520 them if like the amount that they owner, the government 0:08:20.560 --> 0:08:22.920 goes up, and nothing good happens to them under the 0:08:22.920 --> 0:08:25.200 current legal structure if the amount of that they order 0:08:25.240 --> 0:08:27.880 the government goes down. But like everyone's assuming the amount 0:08:27.880 --> 0:08:30.440 they owned the government will at some point go down 0:08:30.960 --> 0:08:34.520 through some sort of decision by the government, and when 0:08:34.559 --> 0:08:36.920 that happens, the people who invest in the stock will 0:08:36.960 --> 0:08:38.959 make a lot of money. I assume Katie's gone. Now, 0:08:39.120 --> 0:08:42.720 this is the problem with Katie is recording this podcast 0:08:42.920 --> 0:08:45.480 live from atop a horse, and she fell off the horse, 0:08:45.520 --> 0:08:47.679 and so the connection was interrupted. 0:08:47.720 --> 0:08:52.479 For Yeah, I'm actually I've been loaded into the ambulance. 0:08:52.559 --> 0:08:55.079 I'm away to the hospital. But you know, I said, 0:08:55.160 --> 0:08:58.920 I gotta connect. I got into the listeners. Okay, So 0:08:58.960 --> 0:09:01.600 you were saying, there there's no hole that this is 0:09:01.760 --> 0:09:03.839 just the status quo. It's not like this. 0:09:04.480 --> 0:09:06.960 There are a lot of weird accounting conceits going on 0:09:07.040 --> 0:09:09.800 here for reasons having to do with like the history 0:09:09.840 --> 0:09:12.560 of the bailout and like literally the US government's debt ceiling. 0:09:13.080 --> 0:09:15.520 But there are all accounting fictions, and like the reality 0:09:16.120 --> 0:09:20.400 is that right now, legally the terms are the government 0:09:20.440 --> 0:09:23.960 just owns Fanny and Freddy, And so the adjustment of 0:09:23.960 --> 0:09:26.560 accounting numbers doesn't really matter, just all the income goes 0:09:26.800 --> 0:09:29.640 to the government. But Bill Ackman, but also a lot 0:09:29.679 --> 0:09:33.360 of people are betting, probably correctly, that that accounting treatment 0:09:33.360 --> 0:09:35.520 will change, and that status COO will change, and the 0:09:35.559 --> 0:09:38.400 beneficiaries of that change will be the people who own 0:09:38.800 --> 0:09:41.040 like twenty percent of the stock that is in public 0:09:41.080 --> 0:09:43.160 hans and that trades over the counter. And the assumption 0:09:43.280 --> 0:09:45.680 is like that stock will become valuable when the government 0:09:45.760 --> 0:09:47.679 figures out how to get Fanny and Freddie off of 0:09:47.720 --> 0:09:48.400 its books. 0:09:48.679 --> 0:09:51.440 I guess, And you address this in the column, like 0:09:51.480 --> 0:09:55.120 what is the incentive for the government to do this? 0:09:55.200 --> 0:09:58.840 And I guess it makes sense why Ackman posted what 0:09:58.880 --> 0:09:59.520 he did. 0:10:00.000 --> 0:10:02.520 Where a sail like the trade is very clear. It's like, 0:10:02.559 --> 0:10:04.920 they'll give you this multi hundred billion dollar company, right 0:10:05.120 --> 0:10:07.720 if you're the government. It's a good question. And part 0:10:07.760 --> 0:10:09.319 of the point of what I wrote the speaker was 0:10:09.400 --> 0:10:10.640 to just kind of press on that and be like, 0:10:11.000 --> 0:10:13.520 you know, the government has this valuable asset and the 0:10:13.640 --> 0:10:15.920 Lackman would prefer to own it, and Blackman is like, 0:10:16.200 --> 0:10:19.240 the government should give it to me. And I think 0:10:19.360 --> 0:10:21.600 there's a wide thread assumption that the government will be like, yes, 0:10:21.679 --> 0:10:23.520 we should give it to you and to be fair 0:10:23.559 --> 0:10:25.640 to like the thousands of retail shaholders that own most 0:10:25.640 --> 0:10:27.920 of it. That's probably right, but it's weird, right, it's weird, 0:10:27.960 --> 0:10:29.840 but the government would just give this thing up. The 0:10:29.920 --> 0:10:33.160 answer to that is that the government's stake in this 0:10:33.760 --> 0:10:37.320 is monetizable, right, It's like it's valuable and they could 0:10:37.360 --> 0:10:39.520 sell it for money. But they can't sell it for 0:10:39.559 --> 0:10:42.440 money unless it's like kind of restructured as a normal company, 0:10:42.520 --> 0:10:45.960 which probably does mean putting the common stock back in 0:10:46.000 --> 0:10:48.000 the money somehow. So the idea is that if the 0:10:48.040 --> 0:10:50.080 government sort of sets this up in a way where 0:10:50.400 --> 0:10:53.320 the common sholders get something, then the government can sell 0:10:53.360 --> 0:10:55.400 down its stake over time, and that steak is going 0:10:55.480 --> 0:10:57.160 to be worth hundreds of billions of dollars and the 0:10:57.200 --> 0:10:59.680 government will get a lot of cash, whereas if it 0:10:59.679 --> 0:11:02.200 doesn't do that, it will continue to own Fanny and Freddy, 0:11:02.320 --> 0:11:04.679 which will continue to have like cash flows that will 0:11:04.720 --> 0:11:06.520 kind of go to the government, and so the government 0:11:06.520 --> 0:11:09.160 will like get money over time. But you know, this way, 0:11:09.480 --> 0:11:11.800 it's like monetizing it possibly a high point and like 0:11:11.840 --> 0:11:14.880 getting cash now instead of like waiting over time to 0:11:15.040 --> 0:11:15.720 collect fees. 0:11:16.679 --> 0:11:19.040 One of the questions if this did happen, like if 0:11:19.120 --> 0:11:23.480 if privacization did happen, what the effect on mortgage rates 0:11:23.559 --> 0:11:26.320 might be. And I mean you talk about in your column, 0:11:26.320 --> 0:11:30.160 how if it was privatized, then that sort of wink wink, 0:11:30.400 --> 0:11:32.480 you know this is backed by the government, that would 0:11:32.640 --> 0:11:35.400 go away, Like they would be allowed to fail if 0:11:35.400 --> 0:11:38.200 they ended up in this situation again, but maybe. 0:11:37.880 --> 0:11:40.560 Why is that maybe allowed to fail? I don't know. 0:11:40.640 --> 0:11:42.079 I think it's hard to sort of game out what 0:11:42.120 --> 0:11:44.280 would happen, because I think what would happen is that 0:11:45.040 --> 0:11:48.000 in twenty twenty six or whenever they're released from government control, 0:11:48.040 --> 0:11:50.640 they will be well capitalized. They'll be like pretty well run, 0:11:50.760 --> 0:11:53.840 They'll be regulated. Everyone involved will have an incentive to 0:11:53.840 --> 0:11:56.559 make sure that they don't go bankrupt six weeks later, 0:11:56.600 --> 0:11:58.120 because like that would be really bad, right, So they're 0:11:58.120 --> 0:12:00.000 not going to do Yeah, they're going to be careful. 0:12:00.440 --> 0:12:03.840 And the question is in twenty years, how will Fanny 0:12:03.880 --> 0:12:07.720 and Freddie be run? And the historical precedent is like 0:12:07.800 --> 0:12:10.200 they started taking some risks and they started making some 0:12:10.320 --> 0:12:12.600 mistakes and like they weren't you know, great about everything, 0:12:12.600 --> 0:12:14.560 and their regulator is maybe a little asleep at the switch, 0:12:14.679 --> 0:12:17.439 and so they ended up going bankrupt, not literally going backrupt, 0:12:17.480 --> 0:12:19.920 but going into conservativeship and being on by the government. 0:12:20.240 --> 0:12:22.960 Would that happen again eventually, maybe, And if it did 0:12:23.000 --> 0:12:24.960 happen again eventually, the question is would they be too 0:12:25.000 --> 0:12:26.920 big to fail and would the government bail them out again? 0:12:27.080 --> 0:12:29.199 Because if so, then it's like it's kind of weird 0:12:29.200 --> 0:12:31.640 to release them, and like, you know, it's like the 0:12:31.640 --> 0:12:35.679 classic story of financial bailouts of like the private shareholders 0:12:35.840 --> 0:12:38.400 get all the upside and then the government takes the downside. 0:12:38.440 --> 0:12:40.960 Like here's the government took the downside. The government took 0:12:41.000 --> 0:12:44.319 them over when they were broke and got a lot 0:12:44.320 --> 0:12:47.440 of upside. But the status quo right now is kind 0:12:47.440 --> 0:12:49.040 of the government gets one hundred percent of the upside, 0:12:49.080 --> 0:12:52.400 and like the releasing them from conservativeship would mean private 0:12:52.400 --> 0:12:54.280 shareholders get the upside again. And then if in like 0:12:54.280 --> 0:12:56.200 twenty years they go bankrupt again, the government takes all 0:12:56.200 --> 0:12:59.040 the downside. It's like a little bit of a negative association. 0:12:59.360 --> 0:13:00.880 But I don't know what happened. I mean, I think 0:13:01.000 --> 0:13:04.439 they will be regulated. They'll have like a regulatory capital requirement. 0:13:04.720 --> 0:13:07.320 The regulator will be part of the Trump administration, Like, 0:13:07.520 --> 0:13:10.720 I'm sure they'll be careful for maybe the rest of 0:13:10.760 --> 0:13:13.920 my financial blocking career, but like eventually, who knows. 0:13:14.000 --> 0:13:16.000 It is kind of fun to imagine a universe where 0:13:16.000 --> 0:13:19.280 they are privatized and then sixteen years later or whatever, 0:13:19.360 --> 0:13:21.199 they end up in this kind of hot water. Again, 0:13:21.800 --> 0:13:23.120 the governments. 0:13:23.280 --> 0:13:25.679 Things are cyclical, like it wouldn't be that weird, you know, 0:13:26.559 --> 0:13:27.080 but we can. 0:13:27.040 --> 0:13:29.920 Just keep doing this until the heat death of the universe. 0:13:30.080 --> 0:13:32.839 And one way that people think about this problem is 0:13:32.840 --> 0:13:35.040 is to try to avoid having institutions that are too 0:13:35.040 --> 0:13:36.600 big to fail, right, Like you try to make it 0:13:36.640 --> 0:13:39.280 so that banks are first of all robust defilure, but 0:13:39.360 --> 0:13:41.360 secondly you try to say, like, you know, can we 0:13:41.440 --> 0:13:43.120 make it so that if they do fail, they can 0:13:43.200 --> 0:13:45.720 fail in a way that like, you know, private capital 0:13:45.720 --> 0:13:48.360 takes all the losses. And like that's definitely part of 0:13:48.400 --> 0:13:50.800 the thinking with Fanny and Freddy, where like instead of 0:13:50.840 --> 0:13:52.760 them backing every mortgage that's on their balance that they 0:13:52.760 --> 0:13:56.360 like are doing risk transfer securities where they're essentially selling 0:13:56.400 --> 0:13:58.800 the credit risk of their mortgages to other private investors, 0:13:58.800 --> 0:14:01.400 so that like it's not just Fanny and Freddy's capitalist 0:14:01.400 --> 0:14:04.160 standing behind the mortgage market. Over the years, as people 0:14:04.200 --> 0:14:06.240 have thought about privatizing Fanny and Freddy, there have been 0:14:06.280 --> 0:14:09.319 proposals of, sure, let's privatize them, but not two of them. 0:14:09.360 --> 0:14:12.720 Let's make them like sixteen of them, so that if 0:14:12.800 --> 0:14:16.960 one mortgage company fails, then fifteen more will be fine 0:14:17.040 --> 0:14:19.520 and it won't be a systemic risk and it won't 0:14:19.520 --> 0:14:22.480 require a government ballot. But you can sort of see 0:14:22.480 --> 0:14:24.840 why that's not the preferred proposal for the people who 0:14:24.840 --> 0:14:26.920 own the stock because who own the stock on the 0:14:26.920 --> 0:14:28.800 stock of like particular companies, and they want to, like, 0:14:28.880 --> 0:14:31.520 you know, have those companies be valuable, and those companies, 0:14:31.480 --> 0:14:33.440 frank they are more valuable if they're too bad to fail. 0:14:33.600 --> 0:14:36.840 I hope that if it is privatized, we are back 0:14:36.880 --> 0:14:40.560 in a low interest rate environment, because the potential effect 0:14:40.560 --> 0:14:43.360 on mortgage rates is somewhat interesting. Like if it doesn't 0:14:43.360 --> 0:14:46.600 have that sort of wink wink government backing. 0:14:46.520 --> 0:14:48.120 I don't know what the effect on mortgage rates would be. 0:14:48.160 --> 0:14:50.520 I think that, like my impression is that Fanny and 0:14:50.520 --> 0:14:54.800 Freddy are sort of run now on a basis that 0:14:54.920 --> 0:14:56.440 is meant to be kind of close to what they'd 0:14:56.440 --> 0:15:00.200 look like as regular public companies, and so like they 0:15:00.240 --> 0:15:03.320 wouldn't like double their guarantee fees tomorrow because they want 0:15:03.360 --> 0:15:06.120 to be more profitable, right, or they would like have 0:15:06.160 --> 0:15:07.920 them because they wanted to be more competitive, right. Like 0:15:07.960 --> 0:15:10.200 their fees are kind of like roughly what you'd expect 0:15:10.240 --> 0:15:16.000 them to continue charging. Would their bonds trade wider if 0:15:16.040 --> 0:15:19.520 they were not backed by the US government? I don't know. 0:15:19.640 --> 0:15:22.120 That's like, you know, the bet that Bilackman is making 0:15:22.200 --> 0:15:24.440 is know that by the time they are released, they 0:15:24.480 --> 0:15:26.400 will have such a fortress balance sheet, they'll be so 0:15:26.440 --> 0:15:29.240 well capitalized that they will be essentially equivalent to the 0:15:29.280 --> 0:15:31.200 credit of the US government and they won't need the 0:15:31.200 --> 0:15:35.000 government backing. But I don't know, it's not totally clear 0:15:35.040 --> 0:15:37.840 that that's true. And it depends also on like what 0:15:39.320 --> 0:15:41.640 actually happens with their capitalization, right, I mean, like you 0:15:41.680 --> 0:15:44.640 can argue over how much capital they should be required 0:15:44.640 --> 0:15:47.000 to hold, and you know, if you're the shareholders, you 0:15:47.080 --> 0:15:51.840 kind of want them to hold relatively little capital because then, 0:15:52.080 --> 0:15:54.720 among other things, that means like you don't have to 0:15:54.760 --> 0:15:58.480 dilute your own shares to make them viable standalone companies. 0:15:58.720 --> 0:16:02.920 If you're a nervous regulator who remembers two thousand and eight, 0:16:02.960 --> 0:16:04.400 you want them to hold a lot of capital, But 0:16:04.520 --> 0:16:06.360 you know, there'll be a debate about how much capital 0:16:06.440 --> 0:16:08.160 they need. You know, Bill Lackman is arguing for a 0:16:08.160 --> 0:16:10.200 two point five percent capital ratio, which is like kind 0:16:10.200 --> 0:16:12.640 of low on the scale of what people argue that, 0:16:12.760 --> 0:16:16.160 but he says it's like it would be seven times 0:16:16.200 --> 0:16:18.120 as much as their losses in two thousand and eight, 0:16:18.400 --> 0:16:20.400 their losses on their guarantee portfolio, which I think is 0:16:20.480 --> 0:16:23.320 you know, suggests that that would be pretty robust. So 0:16:23.320 --> 0:16:24.760 there's gonna be a lot of argument about how much 0:16:24.800 --> 0:16:25.440 capital they need. 0:16:25.880 --> 0:16:29.320 Well, we'll see. I don't know where this possibly ranks 0:16:29.400 --> 0:16:32.760 on the Trump administration's priority list. And I mean there's 0:16:33.040 --> 0:16:35.440 analysts from Bluebern Intelligence who expect that this is like 0:16:35.440 --> 0:16:37.760 a twenty six twenty seven conversation. 0:16:37.880 --> 0:16:39.840 So I think it's a twenty six twenty seven like 0:16:39.960 --> 0:16:43.280 events in part because of like every quarter that goes 0:16:43.320 --> 0:16:45.600 by that they're profitable, they build up more capital, and 0:16:45.640 --> 0:16:48.840 it's just easier to do this trade. So like, even 0:16:48.880 --> 0:16:51.320 if it was the top priority, releasing them tomorrow would 0:16:51.400 --> 0:16:53.640 make less sense than releasing them in twenty twenty seven. 0:16:54.000 --> 0:16:56.040 I don't know it ranks on the list of priorities either, 0:16:56.080 --> 0:16:57.720 but you know, it's like there's a. 0:16:57.640 --> 0:16:59.880 Reason it means to buy Greenland first, right. 0:17:00.480 --> 0:17:02.800 But also tweeting it and you know, like there's like 0:17:02.840 --> 0:17:04.320 your hedge fund buddies come to you, like, hey, you 0:17:04.320 --> 0:17:06.520 could really have about your hedgehund buddies. Then maybe it 0:17:06.560 --> 0:17:08.439 works out right, And like the other thing is like, 0:17:08.440 --> 0:17:10.440 so he's tweeting this in part for like the officials 0:17:10.440 --> 0:17:12.560 to read it, but he's also you know, other people 0:17:12.560 --> 0:17:14.440 will see this idea and maybe they'll buy the stock. 0:17:14.520 --> 0:17:16.159 Some of those people are retail people who have you know, 0:17:16.440 --> 0:17:18.920 have no influence with the administration, but who knows who 0:17:18.920 --> 0:17:19.560 else will buy it? 0:17:19.640 --> 0:17:19.840 Right? 0:17:20.160 --> 0:17:22.119 Yeah, what if Elon Musk's these two's like, oh, that's 0:17:22.160 --> 0:17:24.159 a good trade and then Elon Musk buys like, you know, 0:17:24.359 --> 0:17:26.399 a million shares of Fanny made. Now it's igh on 0:17:26.400 --> 0:17:27.680 the priority list. 0:17:28.000 --> 0:17:30.399 Yeah, And I mean didn't the shows rise like forty 0:17:30.400 --> 0:17:32.639 five percent of the day that he tweeted it. I 0:17:32.640 --> 0:17:34.840 think it was December thirtieth, So it's not like there 0:17:34.880 --> 0:17:38.119 was a ton of volume going on, but the backs 0:17:38.160 --> 0:17:38.840 were pumped. 0:17:39.160 --> 0:17:41.359 Yeah, it's very binary, right, Like this is either a 0:17:41.440 --> 0:17:43.600 very valuable company or it's worth zero, and like it's 0:17:43.640 --> 0:17:45.800 just like some day someone's gonna flip the switch and 0:17:45.840 --> 0:17:49.320 make it very valuable. Probably almost certainly, And like Bill 0:17:49.400 --> 0:17:51.840 Lackman putting it on Twitter, like moves up the day 0:17:51.840 --> 0:17:53.280 when they flip the switch, and that makes it a 0:17:53.320 --> 0:18:04.080 lot more life. 0:18:07.280 --> 0:18:10.280 One of those wacky kids getting up to over in Indiana. 0:18:10.520 --> 0:18:11.480 I love these kids. 0:18:11.640 --> 0:18:15.640 So are they still students or no? 0:18:15.640 --> 0:18:17.879 No, no, I've looked up a couple of them on LinkedIn. 0:18:17.920 --> 0:18:19.159 They they have real jobs. 0:18:19.200 --> 0:18:20.760 They're not did you add them? 0:18:20.920 --> 0:18:23.080 No, But they're not like running this golf resort as 0:18:23.080 --> 0:18:26.960