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How the Trump Team Might Make Some Hedge Funds Solvent Again

Summary:
Immediately following President Trump’s election, Fannie Mae and Freddie Mac’s future generated renewed and robust interest. The Government Sponsored Entities’ (GSE) shares rallied on expectations that the Trump administration would take both entities out of conservatorship in a manner that rewarded all shareholders, including hedge-fund speculators. In the intervening two years, however, those expectations faded ...

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Immediately following President Trump’s election, Fannie Mae and Freddie Mac’s future generated renewed and robust interest. The Government Sponsored Entities’ (GSE) shares rallied on expectations that the Trump administration would take both entities out of conservatorship in a manner that rewarded all shareholders, including hedge-fund speculators. In the intervening two years, however, those expectations faded and shares in the GSEs underwent a slow decline.

That changed last month when President Trump announced that he would appoint Comptroller of the Currency, Joseph Otting, to serve as Acting Director of the Federal Housing Finance Agency (FHFA). Since that announcement, shares in Fannie Mae had risen 264 percent as of the market’s close on January 28), with a similar increase in the value of shares in Freddie Mac. Less than two weeks after taking office on January 7, 2019, Otting had already made clear that investors’ confidence has not been misplaced; in a January 17 meeting, Otting told FHFA employees that the administration would release a plan in the coming weeks to take the GSEs out of conservatorship.   

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