What really happened this week . . . . Saving Fannie's Fanny

[Elliott]

WSJ Editorial,

Fannie Mae Alchemy
February 29, 2008; Page A16
Both Fannie Mae and Freddie Mac lost lots of money last quarter and last year -- and we mean lots. If they continue losing money at current rates, in fact, they could find themselves below their mandatory capital requirements in another six months or so.
Fannie and Freddie think that the best way to deal with this problem is to allow them to leverage up even further by reducing those same capital requirements. Some on Capitol Hill, notably New York Democrat Chuck Schumer, agree. Like maxed-out consumers who were about to reach their credit limit, Fannie and Freddie already hit up investors for a cool $13.8 billion in additional capital last quarter. But as they continue to lose money, their capital position remains tenuous. So now, with the help of Senator Schumer and other friends on the Hill, they're trying to get their credit limits raised. Like political alchemists, they want to turn their losses into the gold of more profit-making opportunities. James Lockhart, the regulator responsible for Fannie and Freddie, gave them a bit of relief this week by eliminating caps on the size of their investment portfolios, and their stock prices jumped. Now the pressure is also on Mr. Lockhart to lower their capital requirements, but nothing about their results suggests that Fannie and Freddie need more risk in their lives -- or ours. The two government-sponsored mortgage giants lost $6.1 billion between them in the fourth quarter.
......
So, what in the world is Congress doing? Mr. Schumer cheered Wednesday when Mr. Lockhart lifted the caps on the companies's portfolios. We guess he thinks that what we really need is more taxpayer exposure to the risk of a meltdown at Fan and Fred. Meanwhile, the reform bill passed by the House last year is stalled in the Senate Banking Committee, thanks in part to Democrats like Mr. Schumer. This is the bill that would strengthen the regulator's power to make sure the two giants stay solvent. What Fannie and Freddie really need is a regulator with the clout to cut up their credit cards before they get into even deeper trouble -- and take the rest of us along with them.

 

[Marcia Langley]

I agree. I think lifting their limits on reserves will hasten the end of them. It sounds like one of those deals that allows them to scarf up some immediate revenues at the expense of longer term solvency.

I just keep trying to imagine how their proposal to Cuomo fits that bizarre picture.

I did notice that in the midst of the big financial sector selloff today Fannie ticked up and so did First American.

 

[Mr Rex]

Real Estate has been the engine driving the economic train for the past decade or more. After the IT stock market "Little engine that could", didn't, RE was on its own. With overvalued properties due to overvalued appraisals and rampant speculation (revisit IT stock market crash) it was bound to happen. The problem is, the economy needs this engine, there are no others. Manufacturing is almost all headed to the far east, and the only booming industries here are health care and health care insurance. The feds are looking to throw some more coal in the engine. Casey Jones you better watch your speed.

 

[Workbox]

Real Estate has been the engine driving the economic train for the past decade or more. After the IT stock market "Little engine that could", didn't, RE was on its own. With overvalued properties due to overvalued appraisals and rampant speculation (revisit IT stock market crash) it was bound to happen. The problem is, the economy needs this engine, there are no others. Manufacturing is almost all headed to the far east, and the only booming industries here are health care and health care insurance. The feds are looking to throw some more coal in the engine. Casey Jones you better watch your speed.

You got that right Rex! How gullible is the general public really sad in many cases. I remember when IT went bust. And then to see the same propaganda for RE. So yes, health care and alternative power is next, you should check out the solar companies.

 

[Mr Rex]

The solar companies could go bust tomorrow if we started drilling again in Alaska, offshore etc. It might be the next big thing, but I limited my comments to proven commodities. Read an article today about pizza prices going up. Cheese is higher because ethanol is using corn that feeds the cows that make milk. Wheat futures @ $17 per bushel, when $7-8 are the norm. Sounds vaguely familiar to oil prices. Speculation is the problem. Go back and look at the California electrical speculation debacle of a few years ago. I'm for less government, but it seems that some big money players can skew the entire economy, and for the good of everyone, that BS must be stopped now. MHO

 

[murray stroupe]

More coal & Casey Jones watch your speed

The solar companies could go bust tomorrow if we started drilling again in Alaska, offshore etc. It might be the next big thing, but I limited my comments to proven commodities.

Read an article today about pizza prices going up. Cheese is higher because ethanol is using corn that feeds the cows that make milk. Wheat futures @ $17 per bushel, when $7-8 are the norm. Sounds vaguely familiar to oil prices. Go back and look at the California electrical speculation debacle of a few years ago. I'm for less government, but it seems that some big money players can skew the entire economy, and for the good of everyone, that BS must be stopped now. MHO

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Those practical points hit the bullseye.Solar has potential, BP is in it;
but one of the better, profitable solar companies got thier p/e busted from a ''sky high''price earnings ratio of about 700 lately.Solar may do better with age, corn,clover ,hay, soybeans ,wheat...... uses solar .

And wheat grass , little humor,LOL.mr Rex.

Interesting you mentioned CA electrical spec;
those crooked traders cheated, like BP did in propane, fined $300 million , by regulators lately,for that propane cheating.

Prefer market solutions, where possible;
Citigroup , CFC,has paid a price wth short sellers, lawyers, class lawyers;
bail bondsmen ,perhaps.