It looks like you're using an Ad Blocker.
Please white-list or disable AboveTopSecret.com in your ad-blocking tool.
Some features of ATS will be disabled while you continue to use an ad-blocker.
Fannie and Freddie: Let’s Call the Whole Thing Off
Fannie (FNM) and Freddie (FRE) are levered more than 50 to 1 (considering their assets on their book, and about 200 to 1 considering also their off balance sheet guarantees). These are levels that would make a Peloton or Bear Stearns portfolio manager blush.
Consider their precarious situation:
* They have had a substantial decline in collateral value (house prices) of perhaps well over 10 percent or so, and with an expected further decline of another 10 percent or so (Case-Schiller index figures are higher than these and OFHEO index figures are lower).
* They have growing default rates and the economy is going through what may be a long and deep recession, most likely the most serious since the 70s, and possibly since the great depression of the 1930s.
* They have significant exposure to sub-prime and ALT-A (actually several times their equity capital)
* "Conforming" mortgages were also affected by the lax and fraudulent practices in the mortgage market, so their quality is not as good in the later vintages as it used to be.
* The mortgage insurers they were relying on to cover first losses were recently downgraded and most likely will not be able to meet the their obligations on all upcoming claims; they are going out of business and will probably become insolvent.
* Management, particularly FNM’s, has been in a state of denial.
* Accounting and controls at the firm are still weak. Management seems to be still tempted to window dress; e.g. they've recently changed the way they calculate their loss ratios which makes them look better, and stopped buying the portfolios of defaulted mortgages for which they provided guarantees to avoid recognizing losses upfront; they now provide the guarantee payments to the holders of the MBS on an as-needed, ongoing basis, and they have not written down their investments in equity in affordable housing tax credits, which the company can only take advantage of if it has profits.
Originally posted by ALightinDarkness
No offense, but did you even read the article? Do you even know what a false flag operation is? I think people just love using the term because it sounds cool and is trendy.
This was written July 8, before recent events and insight into Fannie and Freddies financials. The recent upswing in the price is in part based on irrational exuberance, but so was most of the downswing based on irrational doom and gloom. None of this means the doom and gloom people are hoping/praying for is anymore likely.
Originally posted by ALightinDarkness
The problem is you went from a rational investment based analysis of Fannie and Freddie to a doom and gloom opinion article with no evidence. What is your point?
Measures to avoid the worst recession in 30 years
By Felix Rohatyn and Everett Ehrlich
Published: July 21 2008 18:30 | Last updated: July 21 2008 18:30
Ben Bernanke, Federal Reserve chairman, this week alluded to an economy facing “numerous difficulties”. In fact there are only two, but each alone is cause for genuine concern over the US economy’s prospects: first, an implosion of the financial system triggered by the teetering housing market; and, second, record prices for oil and other commodities that are largely driven by events abroad.
Policymaking in the past year has shuttled ineffectively between these two fronts. One day all eyes are focused on the prospective collapse of Fannie Mae and Freddie Mac and the next day we are preoccupied with the prospect of $200, or $500, oil. It is time to devise a programme to promote overall economic recovery by fighting for the economy’s future on both fronts simultaneously.
On the financial front, the Treasury’s proposal to salvage Fannie Mae and Freddie Mac is a good start and may solve the problem.