THE DOT - if this turns orange or red be alert

Friday, November 6, 2009

Brainstorming Friday - part 1

1. We are building a Head and Shoulder pattern and we are about the levels the right shoulder should have. The basic idea after the impulse move of last week down is followed by the pullback move which should exhaust by today or latest Monday before another downside wave should turn up and drive markets even lower.

2 The Treasury is on an outrageous path of selling out Mainstreet as it has already negotiated with Warren Buffett and Goldman to sell Fannie tax credits to them. Well again we get that Buffett has 2 faces the nice wise Omaha guy and the tough opportunist who grabs any dime around as it turns out.


Goldman/Buffett/Fannie Tax Deal Inked a Month Ago

Bruce Krasting's picture

If you were curious about the recent news regarding Goldman Sachs and Warren Buffett’s interest in acquiring the tax losses of Fannie Mae here is the scoop.

This deal was agreed to and inked a month ago. It is still pending approval. So the information that was first reported by Bloomberg was a deliberate leak. Note that the 10-Q provides an update of the deal’s status as of today. My read is that the leakers were trying to get the deal approved before this 10-Q went public. We are being kept in the dark.

From the Fannie Mae 10-Q , November 2009

Prior to September 30, 2009, we entered into a nonbinding letter of intent to transfer equity interests in our LIHTC investments. Under the terms of the transaction as currently contemplated, we would transfer to unrelated third-party investors approximately one-half of our LIHTC investments for a price that exceeds their current carrying value. Upon completion of the contemplated transfer, the unrelated third-party investors would be entitled to receive substantially all of the tax benefits from our LIHTC investments for a specified period of time. At a specified future date, the percentage of tax benefits the investors would receive would automatically be reduced and the percentage of tax benefits we would receive would be increased by the same amount. In addition, we could have the obligation to reacquire all or a portion of the transferred interests.

We have requested the approval of FHFA, as our conservator, to complete this transaction. FHFA has advised us that it has no objection to this transaction as it is consistent with the conservation of the assets of the corporation and that FHFA has requested Treasury’s approval under the senior preferred stock purchase agreement. As of November 5, 2009, FHFA has not yet received this approval. If in the future we determine we no longer have the intent and ability to sell or otherwise transfer our LIHTC investments for value, we would record additional other-than-temporary impairment to reduce the carrying value of our LIHTC investments to zero. As of September 30, 2009, the carrying value of our LIHTC investments was $5.2 billion.

So Warren's paying $3b (?) and getting $6 bil (?) in credits over a period of years. A good thing when you own a profitable railroad. Warrens' supposed to be a good guy. Looks like he is playing rough.

by Leo Kolivakis
on Thu, 11/05/2009 - 17:51

Sorry Bruce, I am lost. Can you give me a little more background on this?

thank you,


by Bruce Krasting
on Thu, 11/05/2009 - 19:09

Fannie has LIHTC. This means "low income housing tax credit". They made loans that benefited this housing. In return they got a tax credit. This happened some time ago. It is silly because Fannie has no income to shelter. This is a way that congress funded (off balance sheet) its housing objectives.

These tax credits can be transferred. It is a complicated transaction, enter GS and Buffett.

This story is out all over now. I was trying to type fast.

The link to Bloomberg's discussion on this:


No comments:

About Me

I am a professional independent trader