"In the absence of anything even resembling a consensus on how big the costs of mortgage put-backs may be, the temptation is to simply say, Who Cares? Well, I'll tell you who cares...
For starters, how about hedge fund manager John Paulson? With a stake in Bank of America of 167 million shares, Mr. Paulson has about 2 billion reasons to care about how big their put-back exposure is.
Mutual fund monster Bruce Berkowitz (Fairholme) has about 667 million reasons to give a damn (54 million shares held).
Hedgie David Tepper of Appaloosa Management, no slouch himself in the "reflation trade", has about 337 million reasons to care (27 million shares).
These three investors make up the Triumvirate of the Reflationista Trade. These are the ultimate Don't-Fight-The-Fed-ers.
That they are all in the same trade, BAC, is not a surprise — it is the quintessential call option on housing and employment. But they may not have bargained for the foreclosure mess that has hit the media with the gale-force wind of 2007's sub-prime storm. Whether or not this particular storm blows over — or spills over — is very much of interest to Paulson, Berkowitz and Tepper, make no mistake."
I'm betting Tepper is not too worried about his stake in Bank of America. Tepper has made it clear that he's willing to put his money where the government's mouth is. And so far the Obama administration has been very clear about its support for our biggest financial institutions.
Treasury Secretary Tim Geithner has vocally opposed any kind of national foreclosure moratorium and has even indicated that he disapproves of voluntary freezes by banks. It's a very safe bet to wager that there's no way it would let FauxclosureGate or the Put-Back Apocalypse put a monkey wrench into the financial system.
Companies mentioned in this post
Bank of America
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