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|Subject: Re: Is your 401(k) Inadequate For Retirement||Date: 8/4/2008 2:54 PM|
|Author: putnid||Number: 13802 of 20240|
Ah, I see that we've now turned our attention from the CRA to Fannie Mae and Freddy Mac. You do realize, DON'T YOU, that both corporations are stockholder-owned, for profit, Fortune 500 enterprises (with a twist)!?!
Sadly, Fannie Mae and Freddie Mac are the only two Fortune 500 companies that are not required to inform the public about any financial difficulties that they may be having. Yes, given their genesis, Fannie and Freddie got all sorts of SWEET guarantees. Their profits remain privatized, but their losses are potentially socialized. In the event that there was some sort of financial collapse within either of these companies, U.S. taxpayers could potentially be held responsible for hundreds of billions of dollars in outstanding debts. A recent investigation by the Justice Department and the SEC into the accounting practices at Freddie Mac revealed accounting errors in the amount of 4.5 to 4.7 billion dollars and resulted in the termination of three of the company's top executives. Ongoing investigations by Congress, particular the House Finance Services subcommittee that oversees the activity of GSEs, will determine the future role of Fannie Mae and Freddie Mac and the secondary mortgage market that they dominate.
On the other hand, both corporations only underwrite "conforming" mortgages. That means that they were not involved in the sub-prime mortgage insanity of "no doc", "no down payment", "interest only", "teaser rate" ARM clown loans and all manner of B$ that other lenders wallowed in (to the detriment/jeopardy of the entire financial industry).
Here's a good summary article regarding Fannie and Freddie:
Unfortunately, we see that these for-profit corporations engaged in quite a bit of "off-balance sheet" accounting (as made famous by Enron)....thereby subjecting their shareholders to heretofore undisclosed risks. These corporations ended up guaranteeing literally trillions of dollars of mortgages. Now...try to follow along...the mortgages they've guaranteed have been "conforming" loans...not the crazy loans so many private lenders had been issuing. Even so, as the housing market collapsed, as the financial industry realized it was holding more than a TRILLION dollars of worthless papaer, Fannie and Freddie got caught up in the devastation. As the economy nose-dived, even some homeowners holding conventional mortgages began defaulting (hey, it sucks when the economy tanks!). How much have Fannie and Freddie had to write off? $11 Billion!!! (Yep, that's it). That's a pittance compared to what Citi, Merril, WaMu, Bear Stearns, Countrywide, IndyMac and hundreds of others have had to write off (more than $400 BILLION, to date), but it still scared the bejeebus outta the Freddie/Fannie shareholders. So the Market sold shares in these corporations, resulting in a 60% loss in share price. Paulson and the Fed moved in to reassure investors. How much risk do Fannie/Freddie truly pose? I dunno. But I bet it's a heck of a lot less than the risks posed by all the screwballs running the rest of our "financial industry."
What I know is this: Fannie/Freddie engaged in more conservative lending in comparison to their crazy-a$$ed brethren. These corporations engaged in off-balance sheet accounting (shame on them!), a widely practiced scheme/scam in corporate America...a practice that should be outlawed (but still isn't). If Fannie/Freddie run into real trouble then it's a sure bet all the other financial houses are doomed.
But, hey, the private sector can do no wrong, eh, fleg?
What me worry.
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