I’m a conservative investor. All my spare cash goes into low-cost index funds, and my wealth increases as the economy expands. My strategy has served me reasonably well in recent decades.
Last week, for the first time ever in my life, I made an investment based solely on the ground that the American government is corrupt.
That decision speaks volumes to me; perhaps it will to you, too. Here’s my kakistocracy thesis.
Bill Ackman, the billionaire hedge fund manager who’s the CEO of Pershing Square, is in Trump’s camp. Ackman endorsed Trump in 2024; he calls Trump “the most pro-business president we’ve ever had;” and Ackman apparently has Trump’s phone number in his contacts list. Ackman has also donated over a half million bucks to Trump’s campaign or associated PACs. Because Ackman’s a billionaire, he can afford to donate more when the time comes.
Ackman has made a large investment in Fannie Mae. (That’s “FNMA,” for anyone foolish enough to read this column for investment advice.) Fannie Mae and Freddie Mac are the two government-sponsored enterprises that buy mortgages to stabilize the housing finance system. Both entities were under distress during the subprime mortgage crisis. In 2008, the federal government put Fannie Mae and Freddie Mac under federal control.
The U.S. Treasury continues to hold hundreds of billions of dollars in senior preferred stock and massive liquidation preferences from the 2008 bailout. The Treasury also holds zero-cost warrants representing up to 79.9% of the common equity ownership in both enterprises.
Ackman believes that the Trump administration will release Fannie Mae and Freddie Mac from government control and allow the mortgage giants to exit conservatorship. Ackman points out that Fannie Mae has fundamentally repaired its financial standing over the last 15 years; he says that the enterprise holds significantly more capital than it did historically before or during the 2008 financial crisis. Ackman asserts that accounting adjustments, strong underlying profitability, and potential relisting opportunities on public exchanges could unlock hidden value in Fannie Mae. Ackman deems Fannie Mae to be a great “asymmetric investment” — meaning the potential for massive upside (with the stock appreciating from the current $4 or $5 to perhaps $40 or $50) significantly outweighs the remaining downside risk.
Frankly, I just barely understand that analysis. But consider my much easier kakistocracy analysis: Ackman has invested a ton of money in Fannie Mae. Ackman needs Trump to do something to make that investment pay off. Ackman can afford to pay more money in ways that might indirectly induce Trump to act. If that happened, Ackman would recover multiples of the cash that he spent currying Trump’s favor. In our current kakistocracy, I’m wagering that something like that might happen.
Ackman might buy some crypto, or kick in a few tens of millions to build a ballroom, or throw some dough to a PAC, or whatever. Trump might then decide that he wants to release Fannie Mae from conservatorship on terms that will make Ackman’s investment multiply ten-fold. (It’s no skin off Trump’s teeth to do this — particularly after the midterms, when there’s no political price to pay — and Trump would love to do a favor for another billionaire, who just gave Trump a few tens of millions of dollars. Not only that: Trump’s decision might even be economically correct. What do I know?)
This is of course all speculation based on complete ignorance of the situation — a position unbiased by knowledge. I’m surely not suggesting any illegality here. I’ve never met Ackman; he’s probably as honest as the day is long. Buying crypto or donating to a ballroom is certainly lawful. And Trump is free to make whatever decisions he cares to about political issues — so long as those decisions are not a quid pro quo for the money, which they naturally wouldn’t be (because that would be a crime).
But that’s my investment thesis, pure and simple: Ackman needs Trump to do something. Ackman will spend some money. Trump will make a decision. Ackman will get richer, and I’ll go along for the ride.
Please don’t bet the mortgage (so to speak) on this based on my thinking. Put almost all your dough into low-cost index funds. After you’ve done that, if you have some spare change left in your desk drawer, consider gambling it on Fannie Mae or Freddie Mac (or similar situations), because America’s institutions can no longer be trusted. You might as well profit from America’s descent into the abyss.
Mark Herrmann spent 17 years as a partner at a leading international law firm and later oversaw litigation, compliance and employment matters at a large international company. He is the author of The Curmudgeon’s Guide to Practicing Law and Drug and Device Product Liability Litigation Strategy (affiliate links). You can reach him by email at inhouse@abovethelaw.com.
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