August 15, 2025 • 26 mins
In this week’s Votes and Verdicts podcast, Bloomberg Intelligence analyst Ben Elliott discusses President Donald Trump’s social media posts concerning Fannie Mae and Freddie Mac and the complexities of executing a public offering of their shares or merging the two government-sponsored enterprises. Nathan Dean analyzed the potential impacts of Trump’s Aug. 7 executive order directing federal agencies to expand access to alternative investments in employer-sponsored contribution plans such as 401(k)s. Elliott Stein discussed Trump’s “debanking” executive order and his social media post threatening to sue Fed Chair Jerome Powell. Justin Teresi gave an overview of litigation concerning AI algorithmic pricing that could affect health insurers, hotels and REITs.
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Episode Transcript
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Speaker 1 (00:15):
Hello, and welcome to the Votes in Verdicts podcast hosted
by the litigation and policy team at Bloomberg Intelligence, the
investment research platform of Bloomberg LP on the Bloomberg Terminal.
Bloomberg Intelligence has five hundred analysts and strategists working across
the globe and focused on all major markets. Our coverage
includes over two thousand equities and credits, and we have
(00:35):
outlooks on more than ninety industries, one hundred market indices,
currencies and commodities. This podcast series examines the intersection of
business policy and law, and today is our weekly look
at the litigation and policy catalysts that we're currently watching
and that we think will impact companies across a number
of different sectors. My name is Elliott Stein. I'm an
(00:56):
analyst with Bloomberg Intelligence covering litigation in the financial sector,
and I'm delighted today as always to be joined by
several of my BI colleagues. As always, you can find
all of our research on the Bloomberg terminal at BIG
and more specifically, you can find our litigation and policy
coverage on our dashboard, which is available on the terminal
(01:16):
at BI laws go just the time stamp this Today
is August fourteenth, twenty twenty five, three three pm New
York time. All Right, to get the conversation going, let's
bring in Ben Elliott, who's one of my colleagues down
in DC. Ben covers Fannie May and Freddie mack which
(01:39):
has been in the news a lot. Ben, Right, the
Trump administration and Trump himself have been posting on social
media their ambitions for the future of Fannie May and
Freddie Mackett, seems. On August eighth, there was a Wall
Street Journal article citing a senior administration officials comments that
the Trump administration is prepared as selfish shares of Fanny
(02:01):
and Freddie as early as this year. And then the
next day, Trump posted on social media and image that
suggests he supports merging the two government sponsored enterprises, and
that idea seems to also have been endorsed by FHFA
director Bill Poulty and hedge fund manager Bill Ackman. And
so Ben, you wrote a note this week titled quote,
(02:23):
can Fanny Freddie release merge re IPO in twenty twenty five?
Question mark not likely? End quote. So Ben, why don't
you come in tell us a little bit about your thinking?
And you know sort of why you think it's probably
overly ambitious to do all that by the end of
this year. Tell us what we know, what we don't
know so far, and you know some of the obstacles
(02:44):
you see with the administration's apparent timeline.
Speaker 2 (02:47):
Yeah, thanks, Helly. So you've told us a lot about
what we do know, not a whole lot. I'd love
to know which senior White House official was the source
for that Wall Street Journal report. I might have been Trump,
might have been Trump. Then the President tweeted the AI
image of himself the New York Stock Exchange ringing the
bell to launch the Great American mortgage Company Tickerson bol Maga.
(03:12):
Obviously that really appeals to his sort of base instincts
about making a big deal and leaving a legacy. But
that appears to be as far as they've really gotten
down the path of thinking about how they're going to
get this done. I think one thing that was interesting
from the Wall Street General report was the administration thinks
(03:33):
maybe the combined enterprises could be worth five hundred billion dollars.
They want to sell five to fifteen percent of the equity,
and they want to raise thirty billion dollars. So if
you just pencil that math out, it doesn't really make
a lot of sense. It's sort of like they're aiming
for the low end of the range, so you know,
why give a range like that. So so those are
(03:55):
the kinds of little tidbits from the report that make
me think, you know that there isn't this hoped for
well of deep analysis behind the sourcing, and that in
that particular article that the so this is sort of
muddy the waters a little bit further right, it's added
the issue of a sort of pre release merger potentially,
(04:20):
which sort of makes sense because the companies are basically
the same, but it's complicated by the fact that each
each enterprise is chartered, for instance, by an Act of Congress.
Can the president ignore two acts of Congress, take the
assets from each company and put them into a new
government and in corporation. I'm not going to say no.
(04:42):
I'm not going to say no. I don't think yes,
not easily, certainly, not in twenty twenty five. But you know,
if it were really a priority, I don't think that
that would be completely beyond what they could accomplish. But
then it is the question of you know, now you'll
(05:03):
have a single gigantic mortgage guaranteor that is responsible for
the lion's share of sort of middle American residential housing.
And they'll be regulated by one of the smallest, least
sort of influential financial regulators in the government, the FHFA,
(05:24):
led by Bill Poulty, and I think that there's some
obvious potential there for regulatory capture and for you know,
the sort of sins of the past to resurface. Everyone
who is familiar with Fanny Freddy before the financial crisis
knows that they had one of the largest and most
powerful lobbying operations of any companies in the US because
(05:47):
they were such political animals. They were founded by you know,
congressional charters, they were based in d C.
Speaker 1 (05:53):
They were.
Speaker 2 (05:55):
Extremely powerful, even sort of pre financial crisis. So I
think that they have not really thought that through on
the merger front. But I think that on the sort
of other end of the spectrum there, could they sell
a little bit of the stock, the common stock that
the Treasury owns in the enterprises in a relatively short
(06:16):
time frame. I think that's totally possible. There's a clear
roadmap for that. Treasury is exited almost every investment they
made during the financial crisis. Other than Fannie May and
Freddie Mac, they're the two investments with the highest internal
RDY to return. They have executed their warrants to buy
common stock and companies before and then auction them in secondaries,
(06:39):
so it's something they know well they could easily replicate.
But there's still that pesky issue of the government's senior
preferred shares, which would mean that people are basically buying
stock in Trump Inc. And they'd be subject to whatever
whatever the president wants to do with the enterprise is.
(07:01):
And that might not necessarily be enough certainty to attract
people like pension bonds, insurance companies, institutional investors with strict
requirements for what they can and can invest in.
Speaker 1 (07:12):
Right, and mean and I mean that there were also
articles recently saying that the Trump administration was starting to
meet with some of the major banks, right, presumably related
to some sort of offering of these shares. Is that
I mean, I'm trying to like, what's the sequence of events? Right,
Like you sort of suggested that they're offering of shares
(07:34):
is probably the easiest thing to get done, So is
that sort of the first step.
Speaker 2 (07:39):
If you if I were going to sit back and
do this process in a rigorous, traditional way. They would not.
It would be the last step. But I don't think
it would be impossible to do it as the first step.
But you can only attract money from people who have
absolute trusts in the Trump administration's ability to eventually get
(08:01):
the companies out of conservorship. Otherwise the common shairs that
they would be selling would be essentially worthless or at
least completely uncertain, if not worthless. So you know, I
think there's clear things that the FHFA and Treasury can
be doing. We go back to twenty twenty, right, both
of them had already hired banks, right, the bank news
is not it's old news, it's five year old news.
(08:24):
The companies actually already engaged bankers. They paid bankers to
go on retainer and start to work on this deal
five years ago. So where does that work.
Speaker 1 (08:36):
Is?
Speaker 3 (08:36):
That?
Speaker 2 (08:36):
Is that totally in the in the garbage bin down?
Do those banks not have any sort of preference in
the bid process? You know, FHFA also had a bunch
of work done by gool Hand low Key, and I
believe they also hired a bank advisor, but now can't
remember off the top of my head. But essentially a
lot of that should be there on the shelf, and
they should be able to really pick that up where
(08:58):
they left off and run with it, as former f
HFA director Mark Collaborate has said they should do. So
it begs the question of is anyone really thinking that
seriously about this if they don't even understand the history
of the transaction that that they created in their previous administration,
(09:18):
And if you look just today at Treasury Secretary Beston's
comments and FHFA Director pulti recent comments on another podcast,
both of them continue to say that anything could happen.
They're they're reviewing all options. They have a couple of
guiding principles, which is basically due no harm. But beyond that,
(09:39):
you know, no decisions have been made. So this all
goes back to I'd love to know who the source
was for the Wall.
Speaker 4 (09:44):
Street Journal article.
Speaker 1 (09:46):
Right, So a lot of known unknowns and I guess
also some unknown unknowns. All right, So what are you
looking for next? If it's possible to I.
Speaker 2 (10:00):
I would love to see FAHFA just do any any
one of the myriad tasks that they would need to do.
I would love to see any indication that they're thinking
about the capital rules that underpin the business, if any
and Freddy, that is really the core of the issue
here right now. They have to hold too much capital,
they're not profitable in sort of a traditional financial sense,
(10:23):
and big serious institutional investors are not going to put
a substantial amount of new money into the business as
it runs today. So until those rules are changed, I
don't think it's a it's a I don't think it's
I think it's mostly a non starter. Really, maybe like
some small retail interest in the transaction, but not the
not the billions of dollars of the the administration is
(10:46):
looking to raise. So I think my first thing I
would like to see is FHFA just acknowledged that something
needs to be done on the capital rules. It's not
even clear that they acknowledge that or intend to do
anything about it.
Speaker 1 (10:59):
Interesting, all right, they gotta work on it. They gotta
figure out some sort of revision to the capitol rules.
They got to figure out exit from conservativeship, they got
to figure out treasuries seeing a referred liquidation preference, and then.
Speaker 2 (11:13):
So and the Treasury's decisions I think will mostly be
made in private, So I actually am not looking for
a huge amount of work there. I think one day
we will we will see somewhat out of the blue
if they choose to do this an amended prefer stock
purchase agreement and an announcement that they have somehow deemed
(11:36):
their share repaid or written down or converted to common
I don't think there will be a ton of indications
that that's coming.
Speaker 1 (11:43):
Right, Yeah, we'll just see it one day to the next,
like we saw this past January. I believe right. All right,
good stuff, Ben So. Speaking of sort of mysterious Trump
social media posts, I also wrote about one this week.
This was Trump's post on August twelfth about here considering
to allow a major lawsuit to proceed against FED Chairs
(12:04):
your own Powell over cost overruns related to the FEDS
building renovations. I wrote a note saying that the post
sort of feels like a hollow threat, since it's difficult
to see exactly what such a lawsuit would look like,
primarily because government officials tend to be immune from lawsuits
related to their official duties, and so if Trump is
concerned with what he perceives to be powells in Competence's
(12:27):
remedy is not to sue you know, his FED chair.
It's to try to fire Powell for cause. But that
of course then results in you know, lengthy litigation, and
Powell would likely have compelling defenses that whatever issues exist
with the Fed's building renovations don't really amount to, you know,
removal for cause, which usually requires some sort of malfeasance
(12:50):
or neglect or waste. So if Trump is suing in
order to ask the court to declare that Powells kind
of justifies as removal for cause, that that probably would
be some sort of advisory opinion, which courts tend to
avoid doing. So that's my take on Trump's post this
past week about head Chair Powell. But having said that,
(13:12):
let's switch gears a little, let's bring a Nathan thin Dean,
our chief policy analyst down in DC. Nathan's The President
signed in executive order on August seventh called Democratizing Access
to Alternative Assets for four to one K Investors. Good
title for an executive order, and it essentially directs the
(13:32):
Labored Department to make it easier for four to one
K plans to include things like crypto and private investments.
Speaker 4 (13:39):
You wrote about it this week.
Speaker 1 (13:40):
Why don't you come in and tell us what that
sort of looks like going forward and what the impact
is for asset managers.
Speaker 5 (13:46):
Yeah, so, you know, what we do think is that
this is going to open up a whole new world
for the asset management industry in terms of reaching for
private assets here and you know, just my colleague Paul
Goldberg gets some number crunching on this, and he said
that even just capturing one percentage point of the twelve
trillion dollar US to find contribution assets market, which includes
(14:08):
around nine trillion and four one ks at a one
percent annual fee, can yield about one point two billion
in revenue for these asset managers. Now, what does the
Department of Labor have to do?
Speaker 1 (14:20):
Now?
Speaker 5 (14:20):
So President Trump put out this executive order, within one
hundred and eighty days, the Department of Labor has to
complete or put out a proposal that would change the
definition of a qualified asset.
Speaker 2 (14:32):
Now.
Speaker 5 (14:32):
I think this is going to happen in two ways. One,
I think the Labor Department is going to change some
guidance that they put out in twenty twenty one. That
guidance essentially said that private equity funds should be not
considered appropriate for four on one K usage. I think
the new guidance will say that's rescinded and we're going
to not make any comment on that. But they're also
(14:53):
going to change the definition of qualified assets so that
a four to one K fiduciary can then go forward
and invest in things like equity, crypto, or even other
types of private assets. We'll have to see what this
definition looks like. The challenge here, though, from the perspective
of the companies, or at least from the fiduciaries, is
that a when it's something like crypto, yes they can
(15:14):
go by bitcoin, but you're talking about a high risk
profile and you're talking about company employer sponsored enterprises who
may not want to be in crypto. It's really going
to be interesting to see who wants to get into
crypto and who doesn't, because I think there are going
to be folks that they're saying, look, I want to
get into bitcoin because for the last ten years I've
(15:34):
seen nothing but going up. And then there are folks
out there saying I don't want to go into bitcoin
because the potential to go to zero is much higher
than if you were to have an SMP or a
type of triple Q type of fund. So we'll see
what happens there. But again, you know, I think you're
going to see some hesitation in the crypto space.
Speaker 4 (15:51):
But then when it comes to the private.
Speaker 5 (15:53):
Markets, they have their own issues as well, and that's
really two things. One liquidity, because if I'm a four
to one K provider, I want to start buying private assets, Well,
how do you mark to market these things on a
daily basis when the liquidity isn't there? And secondly, if
you have a significant retail exposure that wants to get
out of said asset, and let's just say you're buying
(16:14):
a private equity fund, what happens if you can't get
out of that asset fairly easily. So again, the liquidity
issues have to be thought out, and then ultimately the
fee structure has to be thought of as well, because
a private equity fee tends to be much higher than
a retail mutual fund fee, which is much less. And therefore,
are retail investors going to want to pay up these
(16:34):
fees to have access to the private markets when they're mine,
they're going to have a mutual fund fee which is
much less, So in terms of the process, I do
think this proposal is coming out in sixty or one
hundred and eighty days. I have a high percentage of
finalization eighty percent. You know, Labor Department is a socialist,
you're going to make this change. I think it's going
to be a fairly easy change for them. But then,
(16:57):
you know, so we'll call it finalization mid to late
next next year. But then really comes down to the
industry and how the industry operates, and we'll have to
see what happens there.
Speaker 1 (17:05):
Got it all right?
Speaker 4 (17:06):
Good stuff.
Speaker 1 (17:07):
So August seventh was actually sort of, you know, somewhat
of a big day for executive orders, because another executive
order that Trump's signed that day was one designed to
prohibit what's known as de banking, which is the denial
of access to financial services based on political affiliations or
reputational risk. That EO instructed banking regulators to identify financial
(17:30):
institutions that are currently or have in the past engaged
in deep banking and to take remedial action against them,
which could include fines or consent decrees or some sort
of other disciplinary measures. My view is that the EO
is probably largely symbolic and not likely to material materially
(17:51):
increase risks for the largest banks, at least because a
lot of the biggest banks have already taken steps to
address the administration's concerns. City Group, for example, in June,
announced it would no longer have a firearms policy related
to clients or partners. Bank of America also in June
began to offer services again to private prisons, and March
(18:13):
JP Morgan amended its policies to protect customers from d banking.
So you know, the EO directs regulators also probe for
past instances of I'm awful de banking, But I'd be
pretty surprised if that turns up any real evidence of
illegal activity that results in any material finds for the
largest banks. But I guess we'll see what happens. But
(18:35):
those are the two EOS from August seventh that we
wanted to talk about. Let's turn to antitrust and artificial
intelligence together at last. That's very and Justin Esie, one
of our anti trust analysts, Justin you have been following
a number of lawsuits involving AI pricing algorithms and allegations
(18:58):
of antitrustolations. I think there was a recent settlement in
the case involving fixing of residential rental rates. I believe, right, right, Yeah,
but you're also following a number of other cases in
other sectors. Why don't you come in and tell us
what you're looking at?
Speaker 4 (19:15):
Yeah, yeah, thanks Elliott.
Speaker 3 (19:16):
So I think the best way to kind of illustrate
what these algorithms are maybe is to say what they aren't, right.
I think there was a lot of talk just last
month about airlines, for example, kind of keeping an eye
on their customers and how they're using websites to determine
what the actual fair presented to that customer should be
if they're going to purchase a particular plane ticket. So
that's kind of surveillance pricing, right, watching what a consumer
(19:40):
is doing and using an AI algorithm to set a
price for that particular consumer based on that activity.
Speaker 4 (19:46):
Here, it's a little bit different.
Speaker 3 (19:48):
These cases are really involving and it's different from case
to case, but they're involving competitors sharing information that might
not be public with a third party that kind of
sits in the middle here, software operator in most instances,
and using that software to develop a price across all
of those folks. That's somewhat uniform, and what it's doing
(20:08):
is getting a better deal, if you will, for the
folks that are using the software. That is the central
allegation of this case. So what does that look like?
Speaker 4 (20:16):
Right?
Speaker 3 (20:16):
We've got health insurers who are now involved here and
the payments they are making to out of network doctors
and other medical providers, and the allegations in these cases
or the health insurers are using this software to kind
of compare notes on what the average prices they're paying
for these services are and generating an offer to those
providers based on that AAI algorithm to try to save
(20:37):
money on services that they see as too costly that
are provided by out of network providers. And then you've
got real estate companies who are allegedly sharing all of
their kind of pricing information with one another to develop
a kind of uniform rent if you will, in particular markets,
charge to folks looking for an apartment but maximizing, you know,
kind of getting the best the best rent they can
(20:58):
by sharing what the vacancy rates look like from unit
to unit across a particular area. And then lastly, there's
these hotel operators who are basically accused of doing the
same thing. Right, you're looking at the context of a
residential rent, but shorter term here with hotels, kind of
comparing notes on what vacancy looks like at a particular city.
You know, how many knights are folks folks looking for
what are the rates that are being charged. That's kind
(21:19):
of what the allegations are and how these algorithms are
being used by companies across these different.
Speaker 1 (21:24):
Sectors, and who's bringing these cases.
Speaker 4 (21:27):
Yeah, so it's really so that varies too.
Speaker 3 (21:29):
It's really the consumers in some in most instances at least,
as we're talking about folks looking to rent an apartment
or folks who are staying at hotels. So the style
is class actions in that particular circumstance. Interestingly, and I
think probably something that will be the end of the
case relatively soon for the health insurer context is that
the out of network providers are bringing the suit there.
(21:51):
But there are some real standing questions there as well. Right,
they're not in contract with these particular health insurance making
the payments the patients who are receiving their services are, right,
So there's a bit of a of an issue there
as to whether or not, you know, the harm has
been adequately applied applied in those cases as well, and what's.
Speaker 1 (22:08):
The status of these cases.
Speaker 3 (22:11):
Yeah, yeah, So in the on the insurance cases right
where we're really chiefly, there's a company called Zealis that
kind of does these repricing efforts, if you will, on
a third party company that does that on behalf of
health insurance. So that case, we think the motion dismissed
just came in this week. It's looking really strong, I
think because when Zellis makes these kind of payment offers
(22:34):
to providers, there's no rule saying, hey, the provider has
to if they accept that payment, they can't go after
the balance of that claim from the pavement patient who
received the care right, so again kind of pointing to
the harm and whether or not the algorithm caused it,
there's always that that ability to go after the patient
for the remainder of a bill after an insurance company
(22:55):
that has has stepped in and paid what they're going
to Now on the hotel cases, they've really run into
a lot of problems, right most of those have been
dismissed already with leave to a mend. Two of them
are on appeal right now. One in Las Vegas. That
one isn't looking particularly strong. But there's one in Atlantic
City involving casino hotels. They're like MGM and Caesar's. That's
on appeal with a hearing schedule no third circuit next month.
(23:16):
That one looks a little bit stronger. And the real
estate case is there really seems to be this kind
of public interest bent here because we're talking about housing, right,
We're talking about access to a place to live. In
those cases, we're seeing a little bit more in terms
of settlements. As you said, Elliott, last week, Gray Star,
the nation's largest landlord, settled some class issues and a
DOJ case brought around this matter, and we think settlements
(23:38):
are probably future settlements are probably on the way in
the class action there too. They're so far there have
been twenty seven companies that have settled. There are so
many who have been sued it's not even funny. We
don't know the identity yet of the twenty seven taking
a deal, but we should see that suon in preliminary
approval filings coming by October first, and.
Speaker 1 (23:58):
Sort of what's your look out a few years, I guess,
how do you see this all ending? Yeah?
Speaker 3 (24:04):
So I think what we have here is a real
recipe for a circuit split, right, because I think what's
happening is that you know, if you're saying one thing
is illegal in the context of one industry from as
an anti trust violation, it probably is in another too, Right.
So it doesn't really make sense that one thing can
be applied one way to a real estate company, but
(24:24):
maybe not with the same factual allegations to a hotel operator. Right.
So I think we're looking at a situation here where
we're missing a real black letter rule as to where
the standard is for what needs to be plied with
the hub and spoke conspiracy here, how much of an
agreement needs to exist between competitors, right, it is just
mere use of the software and enough to get you there.
(24:46):
So I think what we're going to see is that,
you know, different rulings in different places. That's what we're
seeing already, and it gets to a point where you know,
we're talking about national or maybe even global low global
companies in some ways. You know, how many different sets
of business practices are you going to have state to
state for offering substantially the same product? Right, I think
we're getting a place here where there could very well
be the circuit split. Does a Supreme Court want to
(25:07):
step in? I think with the growth of AI, we're
really getting to a situation where we're talking about some
pretty central business practices. So I think we see how
it develops from there.
Speaker 1 (25:16):
Well, that'd be interesting if it goes all the way
up to the Supreme Court. Yeah, yes, all right, I
think we're gonna leave it there, and we'll wrap up
this episode of Votes and Verdicts. As always, thank you
for listening. If you have any questions about any of
the matters that we discussed on this episode, please don't
hesitate to reach out to us at your convenience with
any questions. As a reminder, once again, you can find
(25:37):
all of our research on the Bloomberg terminal at big
or on our litigation and policy dashboard at BI laws Go,
and we encourage you to listen to other episodes of
Votes and Verdicts on whatever platform you'd like to get
your favorite podcasts. Thank you again for listening, and have
a great day.
Hello, and welcome to the Votes in Verdicts podcast hosted
by the litigation and policy team at Bloomberg Intelligence, the
investment research platform of Bloomberg LP on the Bloomberg Terminal.
Bloomberg Intelligence has five hundred analysts and strategists working across
the globe and focused on all major markets. Our coverage
includes over two thousand equities and credits, and we have
(00:35):
outlooks on more than ninety industries, one hundred market indices,
currencies and commodities. This podcast series examines the intersection of
business policy and law, and today is our weekly look
at the litigation and policy catalysts that we're currently watching
and that we think will impact companies across a number
of different sectors. My name is Elliott Stein. I'm an
(00:56):
analyst with Bloomberg Intelligence covering litigation in the financial sector,
and I'm delighted today as always to be joined by
several of my BI colleagues. As always, you can find
all of our research on the Bloomberg terminal at BIG
and more specifically, you can find our litigation and policy
coverage on our dashboard, which is available on the terminal
(01:16):
at BI laws go just the time stamp this Today
is August fourteenth, twenty twenty five, three three pm New
York time. All Right, to get the conversation going, let's
bring in Ben Elliott, who's one of my colleagues down
in DC. Ben covers Fannie May and Freddie mack which
(01:39):
has been in the news a lot. Ben, Right, the
Trump administration and Trump himself have been posting on social
media their ambitions for the future of Fannie May and
Freddie Mackett, seems. On August eighth, there was a Wall
Street Journal article citing a senior administration officials comments that
the Trump administration is prepared as selfish shares of Fanny
(02:01):
and Freddie as early as this year. And then the
next day, Trump posted on social media and image that
suggests he supports merging the two government sponsored enterprises, and
that idea seems to also have been endorsed by FHFA
director Bill Poulty and hedge fund manager Bill Ackman. And
so Ben, you wrote a note this week titled quote,
(02:23):
can Fanny Freddie release merge re IPO in twenty twenty five?
Question mark not likely? End quote. So Ben, why don't
you come in tell us a little bit about your thinking?
And you know sort of why you think it's probably
overly ambitious to do all that by the end of
this year. Tell us what we know, what we don't
know so far, and you know some of the obstacles
(02:44):
you see with the administration's apparent timeline.
Speaker 2 (02:47):
Yeah, thanks, Helly. So you've told us a lot about
what we do know, not a whole lot. I'd love
to know which senior White House official was the source
for that Wall Street Journal report. I might have been Trump,
might have been Trump. Then the President tweeted the AI
image of himself the New York Stock Exchange ringing the
bell to launch the Great American mortgage Company Tickerson bol Maga.
(03:12):
Obviously that really appeals to his sort of base instincts
about making a big deal and leaving a legacy. But
that appears to be as far as they've really gotten
down the path of thinking about how they're going to
get this done. I think one thing that was interesting
from the Wall Street General report was the administration thinks
(03:33):
maybe the combined enterprises could be worth five hundred billion dollars.
They want to sell five to fifteen percent of the equity,
and they want to raise thirty billion dollars. So if
you just pencil that math out, it doesn't really make
a lot of sense. It's sort of like they're aiming
for the low end of the range, so you know,
why give a range like that. So so those are
(03:55):
the kinds of little tidbits from the report that make
me think, you know that there isn't this hoped for
well of deep analysis behind the sourcing, and that in
that particular article that the so this is sort of
muddy the waters a little bit further right, it's added
the issue of a sort of pre release merger potentially,
(04:20):
which sort of makes sense because the companies are basically
the same, but it's complicated by the fact that each
each enterprise is chartered, for instance, by an Act of Congress.
Can the president ignore two acts of Congress, take the
assets from each company and put them into a new
government and in corporation. I'm not going to say no.
(04:42):
I'm not going to say no. I don't think yes,
not easily, certainly, not in twenty twenty five. But you know,
if it were really a priority, I don't think that
that would be completely beyond what they could accomplish. But
then it is the question of you know, now you'll
(05:03):
have a single gigantic mortgage guaranteor that is responsible for
the lion's share of sort of middle American residential housing.
And they'll be regulated by one of the smallest, least
sort of influential financial regulators in the government, the FHFA,
(05:24):
led by Bill Poulty, and I think that there's some
obvious potential there for regulatory capture and for you know,
the sort of sins of the past to resurface. Everyone
who is familiar with Fanny Freddy before the financial crisis
knows that they had one of the largest and most
powerful lobbying operations of any companies in the US because
(05:47):
they were such political animals. They were founded by you know,
congressional charters, they were based in d C.
Speaker 1 (05:53):
They were.
Speaker 2 (05:55):
Extremely powerful, even sort of pre financial crisis. So I
think that they have not really thought that through on
the merger front. But I think that on the sort
of other end of the spectrum there, could they sell
a little bit of the stock, the common stock that
the Treasury owns in the enterprises in a relatively short
(06:16):
time frame. I think that's totally possible. There's a clear
roadmap for that. Treasury is exited almost every investment they
made during the financial crisis. Other than Fannie May and
Freddie Mac, they're the two investments with the highest internal
RDY to return. They have executed their warrants to buy
common stock and companies before and then auction them in secondaries,
(06:39):
so it's something they know well they could easily replicate.
But there's still that pesky issue of the government's senior
preferred shares, which would mean that people are basically buying
stock in Trump Inc. And they'd be subject to whatever
whatever the president wants to do with the enterprise is.
(07:01):
And that might not necessarily be enough certainty to attract
people like pension bonds, insurance companies, institutional investors with strict
requirements for what they can and can invest in.
Speaker 1 (07:12):
Right, and mean and I mean that there were also
articles recently saying that the Trump administration was starting to
meet with some of the major banks, right, presumably related
to some sort of offering of these shares. Is that
I mean, I'm trying to like, what's the sequence of events? Right,
Like you sort of suggested that they're offering of shares
(07:34):
is probably the easiest thing to get done, So is
that sort of the first step.
Speaker 2 (07:39):
If you if I were going to sit back and
do this process in a rigorous, traditional way. They would not.
It would be the last step. But I don't think
it would be impossible to do it as the first step.
But you can only attract money from people who have
absolute trusts in the Trump administration's ability to eventually get
(08:01):
the companies out of conservorship. Otherwise the common shairs that
they would be selling would be essentially worthless or at
least completely uncertain, if not worthless. So you know, I
think there's clear things that the FHFA and Treasury can
be doing. We go back to twenty twenty, right, both
of them had already hired banks, right, the bank news
is not it's old news, it's five year old news.
(08:24):
The companies actually already engaged bankers. They paid bankers to
go on retainer and start to work on this deal
five years ago. So where does that work.
Speaker 1 (08:36):
Is?
Speaker 3 (08:36):
That?
Speaker 2 (08:36):
Is that totally in the in the garbage bin down?
Do those banks not have any sort of preference in
the bid process? You know, FHFA also had a bunch
of work done by gool Hand low Key, and I
believe they also hired a bank advisor, but now can't
remember off the top of my head. But essentially a
lot of that should be there on the shelf, and
they should be able to really pick that up where
(08:58):
they left off and run with it, as former f
HFA director Mark Collaborate has said they should do. So
it begs the question of is anyone really thinking that
seriously about this if they don't even understand the history
of the transaction that that they created in their previous administration,
(09:18):
And if you look just today at Treasury Secretary Beston's
comments and FHFA Director pulti recent comments on another podcast,
both of them continue to say that anything could happen.
They're they're reviewing all options. They have a couple of
guiding principles, which is basically due no harm. But beyond that,
(09:39):
you know, no decisions have been made. So this all
goes back to I'd love to know who the source
was for the Wall.
Speaker 4 (09:44):
Street Journal article.
Speaker 1 (09:46):
Right, So a lot of known unknowns and I guess
also some unknown unknowns. All right, So what are you
looking for next? If it's possible to I.
Speaker 2 (10:00):
I would love to see FAHFA just do any any
one of the myriad tasks that they would need to do.
I would love to see any indication that they're thinking
about the capital rules that underpin the business, if any
and Freddy, that is really the core of the issue
here right now. They have to hold too much capital,
they're not profitable in sort of a traditional financial sense,
(10:23):
and big serious institutional investors are not going to put
a substantial amount of new money into the business as
it runs today. So until those rules are changed, I
don't think it's a it's a I don't think it's
I think it's mostly a non starter. Really, maybe like
some small retail interest in the transaction, but not the
not the billions of dollars of the the administration is
(10:46):
looking to raise. So I think my first thing I
would like to see is FHFA just acknowledged that something
needs to be done on the capital rules. It's not
even clear that they acknowledge that or intend to do
anything about it.
Speaker 1 (10:59):
Interesting, all right, they gotta work on it. They gotta
figure out some sort of revision to the capitol rules.
They got to figure out exit from conservativeship, they got
to figure out treasuries seeing a referred liquidation preference, and then.
Speaker 2 (11:13):
So and the Treasury's decisions I think will mostly be
made in private, So I actually am not looking for
a huge amount of work there. I think one day
we will we will see somewhat out of the blue
if they choose to do this an amended prefer stock
purchase agreement and an announcement that they have somehow deemed
(11:36):
their share repaid or written down or converted to common
I don't think there will be a ton of indications
that that's coming.
Speaker 1 (11:43):
Right, Yeah, we'll just see it one day to the next,
like we saw this past January. I believe right. All right,
good stuff, Ben So. Speaking of sort of mysterious Trump
social media posts, I also wrote about one this week.
This was Trump's post on August twelfth about here considering
to allow a major lawsuit to proceed against FED Chairs
(12:04):
your own Powell over cost overruns related to the FEDS
building renovations. I wrote a note saying that the post
sort of feels like a hollow threat, since it's difficult
to see exactly what such a lawsuit would look like,
primarily because government officials tend to be immune from lawsuits
related to their official duties, and so if Trump is
concerned with what he perceives to be powells in Competence's
(12:27):
remedy is not to sue you know, his FED chair.
It's to try to fire Powell for cause. But that
of course then results in you know, lengthy litigation, and
Powell would likely have compelling defenses that whatever issues exist
with the Fed's building renovations don't really amount to, you know,
removal for cause, which usually requires some sort of malfeasance
(12:50):
or neglect or waste. So if Trump is suing in
order to ask the court to declare that Powells kind
of justifies as removal for cause, that that probably would
be some sort of advisory opinion, which courts tend to
avoid doing. So that's my take on Trump's post this
past week about head Chair Powell. But having said that,
(13:12):
let's switch gears a little, let's bring a Nathan thin Dean,
our chief policy analyst down in DC. Nathan's The President
signed in executive order on August seventh called Democratizing Access
to Alternative Assets for four to one K Investors. Good
title for an executive order, and it essentially directs the
(13:32):
Labored Department to make it easier for four to one
K plans to include things like crypto and private investments.
Speaker 4 (13:39):
You wrote about it this week.
Speaker 1 (13:40):
Why don't you come in and tell us what that
sort of looks like going forward and what the impact
is for asset managers.
Speaker 5 (13:46):
Yeah, so, you know, what we do think is that
this is going to open up a whole new world
for the asset management industry in terms of reaching for
private assets here and you know, just my colleague Paul
Goldberg gets some number crunching on this, and he said
that even just capturing one percentage point of the twelve
trillion dollar US to find contribution assets market, which includes
(14:08):
around nine trillion and four one ks at a one
percent annual fee, can yield about one point two billion
in revenue for these asset managers. Now, what does the
Department of Labor have to do?
Speaker 1 (14:20):
Now?
Speaker 5 (14:20):
So President Trump put out this executive order, within one
hundred and eighty days, the Department of Labor has to
complete or put out a proposal that would change the
definition of a qualified asset.
Speaker 2 (14:32):
Now.
Speaker 5 (14:32):
I think this is going to happen in two ways. One,
I think the Labor Department is going to change some
guidance that they put out in twenty twenty one. That
guidance essentially said that private equity funds should be not
considered appropriate for four on one K usage. I think
the new guidance will say that's rescinded and we're going
to not make any comment on that. But they're also
(14:53):
going to change the definition of qualified assets so that
a four to one K fiduciary can then go forward
and invest in things like equity, crypto, or even other
types of private assets. We'll have to see what this
definition looks like. The challenge here, though, from the perspective
of the companies, or at least from the fiduciaries, is
that a when it's something like crypto, yes they can
(15:14):
go by bitcoin, but you're talking about a high risk
profile and you're talking about company employer sponsored enterprises who
may not want to be in crypto. It's really going
to be interesting to see who wants to get into
crypto and who doesn't, because I think there are going
to be folks that they're saying, look, I want to
get into bitcoin because for the last ten years I've
(15:34):
seen nothing but going up. And then there are folks
out there saying I don't want to go into bitcoin
because the potential to go to zero is much higher
than if you were to have an SMP or a
type of triple Q type of fund. So we'll see
what happens there. But again, you know, I think you're
going to see some hesitation in the crypto space.
Speaker 4 (15:51):
But then when it comes to the private.
Speaker 5 (15:53):
Markets, they have their own issues as well, and that's
really two things. One liquidity, because if I'm a four
to one K provider, I want to start buying private assets, Well,
how do you mark to market these things on a
daily basis when the liquidity isn't there? And secondly, if
you have a significant retail exposure that wants to get
out of said asset, and let's just say you're buying
(16:14):
a private equity fund, what happens if you can't get
out of that asset fairly easily. So again, the liquidity
issues have to be thought out, and then ultimately the
fee structure has to be thought of as well, because
a private equity fee tends to be much higher than
a retail mutual fund fee, which is much less. And therefore,
are retail investors going to want to pay up these
(16:34):
fees to have access to the private markets when they're mine,
they're going to have a mutual fund fee which is
much less, So in terms of the process, I do
think this proposal is coming out in sixty or one
hundred and eighty days. I have a high percentage of
finalization eighty percent. You know, Labor Department is a socialist,
you're going to make this change. I think it's going
to be a fairly easy change for them. But then,
(16:57):
you know, so we'll call it finalization mid to late
next next year. But then really comes down to the
industry and how the industry operates, and we'll have to
see what happens there.
Speaker 1 (17:05):
Got it all right?
Speaker 4 (17:06):
Good stuff.
Speaker 1 (17:07):
So August seventh was actually sort of, you know, somewhat
of a big day for executive orders, because another executive
order that Trump's signed that day was one designed to
prohibit what's known as de banking, which is the denial
of access to financial services based on political affiliations or
reputational risk. That EO instructed banking regulators to identify financial
(17:30):
institutions that are currently or have in the past engaged
in deep banking and to take remedial action against them,
which could include fines or consent decrees or some sort
of other disciplinary measures. My view is that the EO
is probably largely symbolic and not likely to material materially
(17:51):
increase risks for the largest banks, at least because a
lot of the biggest banks have already taken steps to
address the administration's concerns. City Group, for example, in June,
announced it would no longer have a firearms policy related
to clients or partners. Bank of America also in June
began to offer services again to private prisons, and March
(18:13):
JP Morgan amended its policies to protect customers from d banking.
So you know, the EO directs regulators also probe for
past instances of I'm awful de banking, But I'd be
pretty surprised if that turns up any real evidence of
illegal activity that results in any material finds for the
largest banks. But I guess we'll see what happens. But
(18:35):
those are the two EOS from August seventh that we
wanted to talk about. Let's turn to antitrust and artificial
intelligence together at last. That's very and Justin Esie, one
of our anti trust analysts, Justin you have been following
a number of lawsuits involving AI pricing algorithms and allegations
(18:58):
of antitrustolations. I think there was a recent settlement in
the case involving fixing of residential rental rates. I believe, right, right, Yeah,
but you're also following a number of other cases in
other sectors. Why don't you come in and tell us
what you're looking at?
Speaker 4 (19:15):
Yeah, yeah, thanks Elliott.
Speaker 3 (19:16):
So I think the best way to kind of illustrate
what these algorithms are maybe is to say what they aren't, right.
I think there was a lot of talk just last
month about airlines, for example, kind of keeping an eye
on their customers and how they're using websites to determine
what the actual fair presented to that customer should be
if they're going to purchase a particular plane ticket. So
that's kind of surveillance pricing, right, watching what a consumer
(19:40):
is doing and using an AI algorithm to set a
price for that particular consumer based on that activity.
Speaker 4 (19:46):
Here, it's a little bit different.
Speaker 3 (19:48):
These cases are really involving and it's different from case
to case, but they're involving competitors sharing information that might
not be public with a third party that kind of
sits in the middle here, software operator in most instances,
and using that software to develop a price across all
of those folks. That's somewhat uniform, and what it's doing
(20:08):
is getting a better deal, if you will, for the
folks that are using the software. That is the central
allegation of this case. So what does that look like?
Speaker 4 (20:16):
Right?
Speaker 3 (20:16):
We've got health insurers who are now involved here and
the payments they are making to out of network doctors
and other medical providers, and the allegations in these cases
or the health insurers are using this software to kind
of compare notes on what the average prices they're paying
for these services are and generating an offer to those
providers based on that AAI algorithm to try to save
(20:37):
money on services that they see as too costly that
are provided by out of network providers. And then you've
got real estate companies who are allegedly sharing all of
their kind of pricing information with one another to develop
a kind of uniform rent if you will, in particular markets,
charge to folks looking for an apartment but maximizing, you know,
kind of getting the best the best rent they can
(20:58):
by sharing what the vacancy rates look like from unit
to unit across a particular area. And then lastly, there's
these hotel operators who are basically accused of doing the
same thing. Right, you're looking at the context of a
residential rent, but shorter term here with hotels, kind of
comparing notes on what vacancy looks like at a particular city.
You know, how many knights are folks folks looking for
what are the rates that are being charged. That's kind
(21:19):
of what the allegations are and how these algorithms are
being used by companies across these different.
Speaker 1 (21:24):
Sectors, and who's bringing these cases.
Speaker 4 (21:27):
Yeah, so it's really so that varies too.
Speaker 3 (21:29):
It's really the consumers in some in most instances at least,
as we're talking about folks looking to rent an apartment
or folks who are staying at hotels. So the style
is class actions in that particular circumstance. Interestingly, and I
think probably something that will be the end of the
case relatively soon for the health insurer context is that
the out of network providers are bringing the suit there.
(21:51):
But there are some real standing questions there as well. Right,
they're not in contract with these particular health insurance making
the payments the patients who are receiving their services are, right,
So there's a bit of a of an issue there
as to whether or not, you know, the harm has
been adequately applied applied in those cases as well, and what's.
Speaker 1 (22:08):
The status of these cases.
Speaker 3 (22:11):
Yeah, yeah, So in the on the insurance cases right
where we're really chiefly, there's a company called Zealis that
kind of does these repricing efforts, if you will, on
a third party company that does that on behalf of
health insurance. So that case, we think the motion dismissed
just came in this week. It's looking really strong, I
think because when Zellis makes these kind of payment offers
(22:34):
to providers, there's no rule saying, hey, the provider has
to if they accept that payment, they can't go after
the balance of that claim from the pavement patient who
received the care right, so again kind of pointing to
the harm and whether or not the algorithm caused it,
there's always that that ability to go after the patient
for the remainder of a bill after an insurance company
(22:55):
that has has stepped in and paid what they're going
to Now on the hotel cases, they've really run into
a lot of problems, right most of those have been
dismissed already with leave to a mend. Two of them
are on appeal right now. One in Las Vegas. That
one isn't looking particularly strong. But there's one in Atlantic
City involving casino hotels. They're like MGM and Caesar's. That's
on appeal with a hearing schedule no third circuit next month.
(23:16):
That one looks a little bit stronger. And the real
estate case is there really seems to be this kind
of public interest bent here because we're talking about housing, right,
We're talking about access to a place to live. In
those cases, we're seeing a little bit more in terms
of settlements. As you said, Elliott, last week, Gray Star,
the nation's largest landlord, settled some class issues and a
DOJ case brought around this matter, and we think settlements
(23:38):
are probably future settlements are probably on the way in
the class action there too. They're so far there have
been twenty seven companies that have settled. There are so
many who have been sued it's not even funny. We
don't know the identity yet of the twenty seven taking
a deal, but we should see that suon in preliminary
approval filings coming by October first, and.
Speaker 1 (23:58):
Sort of what's your look out a few years, I guess,
how do you see this all ending? Yeah?
Speaker 3 (24:04):
So I think what we have here is a real
recipe for a circuit split, right, because I think what's
happening is that you know, if you're saying one thing
is illegal in the context of one industry from as
an anti trust violation, it probably is in another too, Right.
So it doesn't really make sense that one thing can
be applied one way to a real estate company, but
(24:24):
maybe not with the same factual allegations to a hotel operator. Right.
So I think we're looking at a situation here where
we're missing a real black letter rule as to where
the standard is for what needs to be plied with
the hub and spoke conspiracy here, how much of an
agreement needs to exist between competitors, right, it is just
mere use of the software and enough to get you there.
(24:46):
So I think what we're going to see is that,
you know, different rulings in different places. That's what we're
seeing already, and it gets to a point where you know,
we're talking about national or maybe even global low global
companies in some ways. You know, how many different sets
of business practices are you going to have state to
state for offering substantially the same product? Right, I think
we're getting a place here where there could very well
be the circuit split. Does a Supreme Court want to
(25:07):
step in? I think with the growth of AI, we're
really getting to a situation where we're talking about some
pretty central business practices. So I think we see how
it develops from there.
Speaker 1 (25:16):
Well, that'd be interesting if it goes all the way
up to the Supreme Court. Yeah, yes, all right, I
think we're gonna leave it there, and we'll wrap up
this episode of Votes and Verdicts. As always, thank you
for listening. If you have any questions about any of
the matters that we discussed on this episode, please don't
hesitate to reach out to us at your convenience with
any questions. As a reminder, once again, you can find
(25:37):
all of our research on the Bloomberg terminal at big
or on our litigation and policy dashboard at BI laws Go,
and we encourage you to listen to other episodes of
Votes and Verdicts on whatever platform you'd like to get
your favorite podcasts. Thank you again for listening, and have
a great day.
Host
Elliott Stein
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