Ackman has made a large investment in Fannie Mae.\u00a0 (That\u2019s \u201cFNMA,\u201d for anyone foolish enough to read this column for investment advice.)\u00a0 Fannie Mae and Freddie Mac are the two government-sponsored enterprises that buy mortgages to stabilize the housing finance system.\u00a0 Both entities were under distress during the subprime mortgage crisis.\u00a0 In 2008, the federal government put Fannie Mae and Freddie Mac under federal control.\u00a0 \u00a0<\/p>\n
The U.S. Treasury continues to hold hundreds of billions of dollars in senior preferred stock and massive liquidation preferences from the 2008 bailout.\u00a0\u00a0The Treasury also holds zero-cost warrants representing up to 79.9% of the common equity ownership in both enterprises.<\/p>\n
Ackman believes that the Trump administration will release Fannie Mae and Freddie Mac from government control and allow the mortgage giants to exit conservatorship.\u00a0\u00a0Ackman points out that Fannie Mae has fundamentally repaired its financial standing over the last 15 years; he says that the enterprise holds significantly more capital than it did historically before or during the 2008 financial crisis.\u00a0\u00a0Ackman asserts that\u00a0accounting adjustments, strong underlying profitability, and potential relisting opportunities on public exchanges could unlock hidden value in Fannie Mae.\u00a0 Ackman deems Fannie Mae to be a great\u00a0\u201casymmetric investment<\/a>\u201d \u2014 meaning the potential for massive upside (with the stock appreciating from the current $4 or $5 to perhaps $40 or $50) significantly outweighs the remaining downside risk.<\/p>\n Frankly, I just barely understand that analysis.\u00a0 But consider my\u00a0much easier kakistocracy analysis:\u00a0 Ackman has invested a ton of money in Fannie Mae.\u00a0 Ackman needs Trump to do something to make that investment pay off.\u00a0 Ackman can afford to pay more money in ways that might indirectly induce Trump to act.\u00a0 If that happened, Ackman would recover multiples of the cash that he spent currying Trump\u2019s favor.\u00a0 In our current kakistocracy, I\u2019m wagering that something like that might happen.<\/p>\n Ackman might buy some crypto, or kick in a few tens of millions to build a ballroom, or throw some dough to a PAC, or whatever.\u00a0 Trump might then decide that he wants to release Fannie Mae from conservatorship on terms that will make Ackman\u2019s investment multiply ten-fold.\u00a0 (It\u2019s no skin off Trump\u2019s teeth to do this \u2014 particularly after the midterms, when there\u2019s no political price to pay \u2014 and Trump would love to do a favor for another billionaire, who just gave Trump a few tens of millions of dollars.\u00a0 Not only that: Trump\u2019s decision might even be economically correct.\u00a0 What do I know?)<\/p>\n This is of course all speculation based on complete ignorance of the situation \u2014 a position unbiased by knowledge.\u00a0 I\u2019m surely not suggesting any illegality here.\u00a0 I\u2019ve never met Ackman; he\u2019s probably as honest as the day is long.\u00a0 Buying crypto or donating to a ballroom is certainly lawful.\u00a0 And Trump is free to make whatever decisions he cares to about political issues \u2014 so long as those decisions are not a quid pro quo<\/em> for the money, which they naturally wouldn\u2019t be (because that would be a crime).<\/p>\n But that\u2019s my investment thesis, pure and simple: Ackman needs Trump to do something. \u00a0Ackman will spend some money.\u00a0 Trump will make a decision.\u00a0 Ackman will get richer, and I\u2019ll go along for the ride.<\/p>\n Please don\u2019t bet the mortgage (so to speak) on this based on my thinking.\u00a0 Put almost all your dough into low-cost index funds.\u00a0 After you\u2019ve done that, if you have some spare change left in your desk drawer, consider gambling it on Fannie Mae or Freddie Mac (or similar situations), because America\u2019s institutions can no longer be trusted.\u00a0 You might as well profit from America\u2019s descent into the abyss.<\/p>\n Mark\u00a0Herrmann\u00a0spent 17 years as a partner at a leading international law firm and later oversaw litigation, compliance and employment matters at a large international company. He is the author of\u00a0<\/em><\/strong>The Curmudgeon\u2019s Guide to Practicing Law<\/em><\/strong><\/a>\u00a0and\u00a0<\/em><\/strong>Drug and Device Product Liability Litigation Strategy<\/em><\/strong><\/a>\u00a0(affiliate links). You can reach him by email at\u00a0<\/em><\/strong>inhouse@abovethelaw.com<\/em><\/strong><\/a>.<\/em><\/strong><\/p>\n The post Investing In A Kakistocracy<\/a> appeared first on Above the Law<\/a>.<\/p>\n I\u2019m a conservative investor.\u00a0 All my spare cash goes into low-cost index funds, and my wealth increases as the economy expands.\u00a0 My strategy has served me reasonably well in recent decades.<\/p>\n Last week, for the first time ever in my life, I made an investment based solely on the ground that the American government is corrupt.<\/p>\n That decision speaks volumes to me; perhaps it will to you, too.\u00a0 Here\u2019s my kakistocracy thesis.<\/p>\n Bill Ackman, the billionaire hedge fund manager who\u2019s the CEO of Pershing Square, is in Trump\u2019s camp.\u00a0 Ackman endorsed Trump in 2024; he calls Trump<\/a>\u00a0\u201cthe most pro-business president we\u2019ve ever had;\u201d and Ackman apparently has Trump\u2019s phone number in his contacts list.\u00a0 Ackman has also donated<\/a> over a half million bucks to Trump\u2019s campaign or associated PACs.\u00a0 Because Ackman\u2019s a billionaire, he can afford to donate more when the time comes.<\/p>\n Ackman has made a large investment in Fannie Mae.\u00a0 (That\u2019s \u201cFNMA,\u201d for anyone foolish enough to read this column for investment advice.)\u00a0 Fannie Mae and Freddie Mac are the two government-sponsored enterprises that buy mortgages to stabilize the housing finance system.\u00a0 Both entities were under distress during the subprime mortgage crisis.\u00a0 In 2008, the federal government put Fannie Mae and Freddie Mac under federal control.\u00a0 \u00a0<\/p>\n The U.S. Treasury continues to hold hundreds of billions of dollars in senior preferred stock and massive liquidation preferences from the 2008 bailout.\u00a0\u00a0The Treasury also holds zero-cost warrants representing up to 79.9% of the common equity ownership in both enterprises.<\/p>\n Ackman believes that the Trump administration will release Fannie Mae and Freddie Mac from government control and allow the mortgage giants to exit conservatorship.\u00a0\u00a0Ackman points out that Fannie Mae has fundamentally repaired its financial standing over the last 15 years; he says that the enterprise holds significantly more capital than it did historically before or during the 2008 financial crisis.\u00a0\u00a0Ackman asserts that\u00a0accounting adjustments, strong underlying profitability, and potential relisting opportunities on public exchanges could unlock hidden value in Fannie Mae.\u00a0 Ackman deems Fannie Mae to be a great\u00a0\u201casymmetric investment<\/a>\u201d \u2014 meaning the potential for massive upside (with the stock appreciating from the current $4 or $5 to perhaps $40 or $50) significantly outweighs the remaining downside risk.<\/p>\n Frankly, I just barely understand that analysis.\u00a0 But consider my\u00a0much easier kakistocracy analysis:\u00a0 Ackman has invested a ton of money in Fannie Mae.\u00a0 Ackman needs Trump to do something to make that investment pay off.\u00a0 Ackman can afford to pay more money in ways that might indirectly induce Trump to act.\u00a0 If that happened, Ackman would recover multiples of the cash that he spent currying Trump\u2019s favor.\u00a0 In our current kakistocracy, I\u2019m wagering that something like that might happen.<\/p>\n Ackman might buy some crypto, or kick in a few tens of millions to build a ballroom, or throw some dough to a PAC, or whatever.\u00a0 Trump might then decide that he wants to release Fannie Mae from conservatorship on terms that will make Ackman\u2019s investment multiply ten-fold.\u00a0 (It\u2019s no skin off Trump\u2019s teeth to do this \u2014 particularly after the midterms, when there\u2019s no political price to pay \u2014 and Trump would love to do a favor for another billionaire, who just gave Trump a few tens of millions of dollars.\u00a0 Not only that: Trump\u2019s decision might even be economically correct.\u00a0 What do I know?)<\/p>\n This is of course all speculation based on complete ignorance of the situation \u2014 a position unbiased by knowledge.\u00a0 I\u2019m surely not suggesting any illegality here.\u00a0 I\u2019ve never met Ackman; he\u2019s probably as honest as the day is long.\u00a0 Buying crypto or donating to a ballroom is certainly lawful.\u00a0 And Trump is free to make whatever decisions he cares to about political issues \u2014 so long as those decisions are not a quid pro quo<\/em> for the money, which they naturally wouldn\u2019t be (because that would be a crime).<\/p>\n But that\u2019s my investment thesis, pure and simple: Ackman needs Trump to do something. \u00a0Ackman will spend some money.\u00a0 Trump will make a decision.\u00a0 Ackman will get richer, and I\u2019ll go along for the ride.<\/p>\n Please don\u2019t bet the mortgage (so to speak) on this based on my thinking.\u00a0 Put almost all your dough into low-cost index funds.\u00a0 After you\u2019ve done that, if you have some spare change left in your desk drawer, consider gambling it on Fannie Mae or Freddie Mac (or similar situations), because America\u2019s institutions can no longer be trusted.\u00a0 You might as well profit from America\u2019s descent into the abyss.<\/p>\n Mark\u00a0Herrmann\u00a0spent 17 years as a partner at a leading international law firm and later oversaw litigation, compliance and employment matters at a large international company. He is the author of\u00a0<\/em><\/strong>The Curmudgeon\u2019s Guide to Practicing Law<\/em><\/strong><\/a>\u00a0and\u00a0<\/em><\/strong>Drug and Device Product Liability Litigation Strategy<\/em><\/strong><\/a>\u00a0(affiliate links). You can reach him by email at\u00a0<\/em><\/strong>[email\u00a0protected]<\/em><\/strong><\/a>.<\/em><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":" I\u2019m a conservative investor.\u00a0 All my spare cash goes into low-cost index funds, and my wealth increases as the economy expands.\u00a0 My strategy has served me reasonably well in recent decades. Last week, for the first time ever in my life, I made an investment based solely on the ground that the American government is […]<\/p>\n","protected":false},"author":3,"featured_media":166608,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","footnotes":""},"categories":[16],"tags":[],"class_list":["post-166607","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-above_the_law"],"_links":{"self":[{"href":"https:\/\/xira.com\/p\/wp-json\/wp\/v2\/posts\/166607","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/xira.com\/p\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/xira.com\/p\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/xira.com\/p\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/xira.com\/p\/wp-json\/wp\/v2\/comments?post=166607"}],"version-history":[{"count":0,"href":"https:\/\/xira.com\/p\/wp-json\/wp\/v2\/posts\/166607\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/xira.com\/p\/wp-json\/wp\/v2\/media\/166608"}],"wp:attachment":[{"href":"https:\/\/xira.com\/p\/wp-json\/wp\/v2\/media?parent=166607"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/xira.com\/p\/wp-json\/wp\/v2\/categories?post=166607"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/xira.com\/p\/wp-json\/wp\/v2\/tags?post=166607"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
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