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My Letter To Bill Ackman Regarding The GSEs

  • The US Government will not allow the GSE’s to be fully privatized.
  • The US Government provides the GSE’s with their implicit mortgage guarantees and should thus reap the rewards of GSE activities.
  • Very little value should accrue to private investors for their equity stakes in the GSE’s.

Below is my letter sent to Bill Ackman of Pershing Square Management in February 2015 regarding his long investments in the GSE's, Fannie Mae (OTCQB:FNMA) & Freddie Mac (OTCQB:FMCC) and why I believe private investor's should reap very little of any value accrued of these firms going forward. Although written in February, it is still as pertinent today as it was then. He did not respond to my certified letter.

To: William Ackman, Pershing Square Management L.P.

RE: The Future Value of the GSEs: Fannie Mae & Freddie Mac

Dear Mr. Ackman,

I am writing you this letter in regard to your long thesis on the common and preferred shares of Fannie Mae & Freddie Mac (OTCQB:FMCC). I have read both your comments in the press as well as your case for the GSEs at the Ira Sohn Conference in May 2014 and presentation, "It's Time to Get Off of Our Fannie."1

As a potential long investor myself, I wanted to write you in order to try to square what I believe is the single largest fundamental obstacle precluding any type of reasonable long investment into Fannie & Freddie.

Before I do that though, I just wanted to state, that like many others (including yourself), I believe that Treasury and the US Government cannot and will not fully nationalize the GSEs. I agree with you that it simply would not be feasible nor practical for the government to fully privatize and run these two gigantic firms while at the same time adding over $6 trillion of US mortgage debt to an already overstretched Federal balance sheet.