FHFA/Treasury Attorney’s Claim “Potential Future Profits” Belong On Balance Sheet

You have to read this and then think about the ramifications of what they claim. The scope of this is staggering……

HT to Peter Chapman at Bankrupt.com for alerting me to it.

From the  FHFA Motion to Dismiss before Judge Lamberth

From the filing:

HERA authorizes the Conservator to “transfer or sell any asset” of the Enterprises “without any approval, assignment, or consent.” 12 U.S.C. Sec. 4617B(2)G.  By executing the Third Amendment,  the Conservator agreed to transfer an Enterprise asset ——— potential future profits ——— to Treasury in exchange for relief from an obligation ——— 10% dividends ——— in order to minimize the  possibility that the Enterprises would exhaust the Treasury  commitment and thereby maximize the possibility that the  Enterprises would survive and avoid receivership.  Section 4617F  thus precludes judicial review of that agreement and prevents the Court from taking any action to “restrain or affect” that agreement.

Sit back now and think about that.  Is it just me missing things or is there a line on corporate balance sheets under “assets” for “potential future profits” ?

Now, the GSE’s did have an “asset” related to earnings on the balance sheet, the DTA’s (deferred tax assets) and some may be inclined to infer this is indeed what FHFA lawyers were referring to when they wrote that.  They weren’t.

For proof we need only reference their own words:

FHFA and Treasury have maintained that they never considered—and need not have considered—the tens of billions of dollars in deferred tax assets held by the Companies, even though those assets were recognized immediately after the Sweep Amendment and resulted in a dividend to Treasury of more than $50 billion. See Treasury Reply 47; FHFA Reply 56; see also APA Opening Br. 17 & n.6, 72-73, 77-78; APA Reply 41-42. Indeed, FHFA’s litigating declaration asserts that the agency never “discuss[ed]” the deferred tax assets while considering the Sweep Amendment and that neither FHFA nor Treasury “envision[ed]” the quick recognition of those assets. FHFA 0009-0010.