Fannie Mae, Freddie Mac Losses Make Them 'Insolvent', Ex-Fed President Poole Says

[marmar]

from Bloomberg:



Fannie, Freddie `Insolvent' After Losses, Poole Says (Update1)

By Dawn Kopecki

July 10 (Bloomberg) -- Borrowing at Fannie Mae, the U.S. government-sponsored mortgage company, has never been so expensive and it may not get better any time soon.

Fannie Mae paid a record yield relative to Treasuries on the sale of $3 billion in two-year notes yesterday amid concern the biggest provider of financing for U.S. home loans won't have enough capital to weather the worst housing slump since the Great Depression. The company's credit-default swaps show traders are treating the AAA rated debt as if it were five steps lower. Fannie Mae shares tumbled 13 percent yesterday in New York to the lowest level in almost 14 years.

Chances are increasing that the U.S. may need to bail out Fannie Mae and the smaller Freddie Mac, former St. Louis Federal Reserve President William Poole said in an interview. Freddie Mac owed $5.2 billion more than its assets were worth in the first quarter, making it insolvent under fair value accounting rules, he said. The fair value of Fannie Mae's assets fell 66 percent to $12.2 billion, data provided by the Washington-based company show, and may be negative next quarter, Poole said.

``Congress ought to recognize that these firms are insolvent, that it is allowing these firms to continue to exist as bastions of privilege, financed by the taxpayer,'' Poole, 71, who left the Fed in March, said in the interview yesterday.

Fair value accounting measures a company's net worth if it had to liquidate all of its assets to repay liabilities. Fannie Mae and Freddie Mac, both of whom have the implicit backing of the government, make money by borrowing in the bond market and reinvesting the proceeds in higher-yielding mortgages and securities backed by home loans. ......(more)

The complete piece is at: http://www.bloomberg.com/apps/news?pid=20601087&sid=a7NPAG.LEjHQ&refer=home

[MannyGoldstein]

1. The Battlin' Cogressional Democrate Won't Let The People Get Fleeced!!!

They'll make sure that the Predator Class does not get bailed out at the expense of the rest of us!!!

Hey Nancy! Can you pass Harry the Grey Poupon?

[Submariner]

2. Mortgage Lender Implode-O-Meter

http://ml-implode.com/

[LiberalEsto]

3. The plan is working

I strongly suspect the rethugs in the Misadministration want to get rid of Fannie and Freddie, which is why they put Dan Mudd, a rethug, in charge of Fannie. He seems to get huge bonuses, no matter how badly Fannie's stock is doing. I think he's there to destroy Fannie, just like various cabinet members were put in place to destroy agencies like the EPA.

I'm honestly not very clear on why they want to get rid of Fannie and Freddie, but a very close friend of mine worked there for 19 years and swears this is what's happening. The rethugs made Frank Raines (a Democrat) a scapegoat for a lot of Fannie's problems, and they recently forced another former Fannie CEO, Jim Johnson, off Obama's vice presidential search team.

Does anyone know more about this?

[marmar]

4. I agree with you.....They are government-backed corporations, and we know how Cons feel about govt..

This is all by design.....Drown it in a bathtub, as Grover Norquist once said.

[HCE SuiGeneris]

5. Time for the old tax-payer funded bailout. They conducted an unethical business,

and the American populace funds their bailout after they reaped trillions in ill-gained profits.

[Phoebe Loosinhouse]

6. "credit default swaps"

The bloomberg article mentions them. I recall reading not too long ago that not these swaps ( which I don't know enough about to intelligently discuss) were the real lurking nightmare that could possibly take down the whole ball of wax.

[flashl]

7. If the warning about the GSE's 'debt iceberg' was $6T in 1990, wonder how BIG that iceberg is today?

The Six Trillion Dollar Debt Iceberg; A Review of the Government's Risk Exposure

June 28, 1990

The government has created a number of off-budget enterprises and is responsible for their finances. These government-sponsored enterprises (GSEs) technically are private organizations, but in practice are treated and act as extensions of the federal government. Several of these enterprises add to the real estate exposure due the troubled mortgage insurance schemes.

...

Collectively, the five government-sponsored enterprises had an outstanding debt obligation of $763 billion at the end of 1989; and they are the fastest growing source of federal credit exposure.

[kentuck]

8. I don't trust this report...

Not saying that Fannie Mae and Freddie Mac do not have serious problems, but I think it is a way to trick Americans into thinking they are "bailing out" government programs, when in fact, we will be bailing out the large banks and financial institutions with our tax dollars. Just declare bankruptcy and get it over with. We do not have the money to pay our debts. Sorry China. When our banks go under, it is over. Comprendez?