Levine on Wall Street: Getting out of Mortgages Is Harder Than It Looks

Matt Levine is a Bloomberg View columnist. He was an editor of Dealbreaker, an investment banker at Goldman Sachs, a mergers and acquisitions lawyer at Wachtell, Lipton, Rosen & Katz and a clerk for the U.S. Court of Appeals for the Third Circuit.
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You'll still have Fannie Mae to kick around.

My model of Fannie Mae and Freddie Mac is that the status quo -- government-run agencies that make 30-year fixed-rate prepayable mortgages affordable and pump large profits into Treasury every quarter -- is too attractive for anyone in government to want to give up, though everyone has to talk a good game about raising private capital and getting government out of the mortgage business. The first part at least seems to be right:

The U.S. regulator overseeing Fannie Mae and Freddie Mac revealed plans to ensure the two mortgage-finance companies maintain support for the fragile housing market, reversing efforts to shrink their role.

The Federal Housing Finance Agency will remove targets for reducing the the companies’ mortgage-market footprint and keep current limits on the size of loans they buy, Melvin L. Watt, the agency’s director, said during a speech in Washington.

This seems pretty unsurprising? The companies' stocks went up, because the longer they stay around as important institutions I guess the more chance there is that someone in the government will accidentally hand them over to a bunch of hedge funds? I'm kind of with John Carney on that one: The government can want to keep Fannie and Freddie's business going without changing its mind on their ownership. Also, Ed DeMarco doesn't like this plan, and here are six takeaways from Nick Timiraos.

Bill Ackman is doing his Allergan referendum thing.

We talked about this on Monday, but yesterday Pershing Square filed its proxy statement for its pretend Allergan shareholder meeting to try to pressure Allergan into negotiating with Valeant. ("Quorum. Because the Meeting is not being called pursuant to the Bylaws or the Charter, the Company’s quorum requirements set forth in the Bylaws and the Charter will not apply to the Meeting.") Ronald Barusch at Dealpolitik is not impressed by Ackman's use of the referendum to evade the poison pill's restrictions on shareholders working together:

Don’t count on future hostile bidders to be able to use informal shareholder’ meetings to build up pressure on targets. ... Future poison pills are likely, as a result of this deal, to limit this carve-out to formal shareholder meetings or other official shareholder actions and not permit the kind of self-help Pershing Square is using here.

On the taxation of inherently permanent indoor sculptures.

Under U.S. tax law, if your business is primarily owning and operating real estate, you can be a real estate investment trust and not pay taxes; otherwise you have to pay taxes. (This oversimplifies a bit.) Since most companies these days are primarily in the business of doing stuff in buildings, you can argue that anything is "real estate," and a lot of not-especially-real-estate-sounding businesses -- cell-phone towers, data storage, renewable energy -- want to take advantage of the REIT rules. Yesterday Treasury issued some guidance about what stuff done in buildings is real estate, and what stuff is not, and it's full of tax-law whimsy. So real estate includes cell phone transmission towers, data centers, railroad tracks, roadbeds, offshore drilling platforms, wharves, in-ground swimming pools, plants (but not harvested fruit), indoor sculpture in a building "specifically designed to support the sculpture," and permanent bus shelters (but not shelters designed to be moved when bus routes change).

The SEC is too slow.

Here is the story of a $300 million alleged Ponzi scheme in Florida that the Securities and Exchange Commission spent seven years investigating. The statute of limitations for bringing securities fraud cases is five years. Do you see the problem? A court did, and added a bit of insult to injury, saying "This is a case in which the SEC - the agency whose principal mission is to 'protect investors and the markets by investigating potential violations of the federal securities laws - failed to meet its serious duty to timely bring this enforcement action."

You can buy CDS ETFs.

Seems fine.

Bankers are moving.

Anthony Noto, Goldman's co-head of technology, media and telecommunications banking, is leaving Goldman to go work for Coatue Management doing private investing in technology companies, because the hedge-fund/venture-capital/whatever-that-is world is sort of obviously more attractive than boring servicey investment banking. Meanwhile Brad Whitman, Barclays' head of financial institutions M&A, is leaving Barclays to go work for Morgan Stanley, because Barclays is like shutting down its investment bank or whatever. But! "Separately, Barclays announced the appointment on Monday of Tom Vandever as managing director and head of financial institutions M.&A. for the Americas." Vandever comes from Goldman. The circle of life continues.

Tim Geithner has a book out.

You've heard, by now. Here is an interview with Ezra Klein. Here is Noam Scheiber arguing that "Geithner would have been much more of a hard-ass had he spent a few years toiling on Wall Street before joining government." And the going rate for lunch with Geithner is around $50,000.

Things happen.

At Morgan Stanley, banking, and shareholder meetings, are boring. Mini flash crashes. Nassim Taleb can price an option without assuming dynamic hedging or complete markets, and he'd like to tell you about it. "Only in a world where the endowments of producers and those of consumers are equal is market-clearance incontrovertibly good policy." "Two Billionaires Got Into an All-Out Street Brawl Over Miranda Kerr." Epic fails. Dogecoin theft.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Matthew S Levine at mlevine51@bloomberg.net

To contact the editor on this story:
Toby Harshaw at tharshaw@bloomberg.net