*** How the GSE BIG BANG could play out... ***
After the FHFA capital rule is finalized next week, Dir. Calabria has an obligation to request capital restoration plans (CRPs) from Fannie & Freddie who have 30 days to submit for approval. $FNMA $FMCC $FNMAS $FMCKJ 1/10

CRPs may be requested before the PSPA amendment is executed between @FHFA & @USTreasury. It would require @FreddieMac @FannieMae @jpmorgan @MorganStanley & @houlihanlokey to highlight that capital cannot be raised with the senior preferred (SPS) outstanding. 2/10

That would force FHFA Dir. Calabria to engage Treasury Sec. Mnuchin to finalize the PSPA amendment (write down SPS, set commit. fee, etc.). Treasury obliges b/c they are now the ones holding up the GSE reform process. Previously, FHFA held this distinction. 3/10

Alternatively, the PSPA amend. could be executed before the CRPs are requested. It's more logical (how can you write a CRP w/o knowing how the PSPA will be resolved?), but I like the narrative that I outlined above even if optics don't matter anymore. 4/10

What about SCOTUS (scheduled to hear Collins v. Mnuchin oral arguments on 12/9)? I think that it's independent. CRPs will be submitted after 12/9 & the PSPA amendment will be executed before Christmas. CRPs will be approved shortly thereafter, possibly after they are edited. 5/10

Alternatively, PSPA amendment could be executed before 12/9 so the SG doesn't have to argue a case that ostensibly gets resolved via administrative action. This would also end the challenge of FHFA structure in SCOTUS which could preserve existing FHFA leadership longer. 6/10

Regardless, post CRP approval, FHFA releases Fannie & Freddie from conservatorship under consent decree (tied to CRPs), they relist on the NYSE & prepare for equity offering. JPS will be converted to common equity @ 80-100% of par @ IPO. 7/10

All lawsuits will be dropped. SCOTUS & cases w/ Judge Sweeney in Court of Claims/Federal Appeals. Cases w/ Judge Lamberth, the only ones that hold the GSEs liable, are most critical b/c they need to be resolved for IPO; so you need favorable treatment of existing JPS. 8/10

There is no risk from Congress. The House and Senate won't get anything done. Senator Toomey will head the Senate Banking Committee and is a proponent of GSE reform. There is no risk from Trump or Biden. FHFA delays do not present any significant risks. 9/10

Risk is that the PSPA amend. does not get finished before Steven Mnuchin resigns. If this happens, GSE investors were wrong & duped by his words. But we're talking @ someone who has had a remarkably successful stint as Treasury Secretary. One more feather in the cap? 10/10