Mortgages, Mergers and Hedge-Fund Fees

Fannie and Freddie.

Yesterday the U.S. Court of Appeals for the D.C. Circuit handed down an odd decision in a lawsuit over the government's nationalization of Fannie Mae and Freddie Mac. The key issue is what's called the "Third Amendment," the 2012 transaction by which the government converted its previous bailout of Fannie and Freddie -- which paid a 10 percent dividend that in practice ate up more than all of their profits -- into an effective nationalization by which all of their profits were automatically "swept" to the government. This amendment was controversial, and for good reason; it seemed like an unfair re-trading of the deal that Fannie and Freddie had made with the government. People who had invested in the companies' preferred shares, hoping they'd be worth something when the companies returned to profitability, were understandably aggrieved, and sued.