Fannie Mae, Freddie Mac
24 January 2008I started writing about these two quasi-governmental mortgage-buyers a couple of years ago; it seemed then that, if something really bad were going to happen in the financial industry, they would be the first place to look.
After all, they were poorly supervised, with a regulatory agency that was half asleep at best.
They had already lost billions of dollars, but no one knew quite how much, since they hadn’t been able to deliver a real financial report for years.
Management was lax, at best, and probably at best was a stretch.
I figured there was something like six billion dollars in cash (not mortgage adjustments) that had just kind of “gone missing” during a time when even chipmunks were making money in real estate.
Last year, they finally brought their books up to 2005, fired a few managers, and declared a bit more than that in losses. Things were looking up.
Today, UBS analysts suggested that additional losses at the FMs this quarter could reach $16B; that’s $8-11B at Mac and $2-5B at Mae.
Let’s try to put this in perspective: without the FMs, particularly in the current real estate mood, there is no mortgage lending industry in the U.S.
I think the number could be much larger, maybe in the $50B+ range. Heck, even Citi and Merrill can lose $18-20B in Q4; the FMs are specialists.
The real question: how fast can the government fill that hole? While the Congress and president fiddle with little inconsequential rebates, a real problem could be brewing inside Fannie and Freddie.
2 Responses to “Fannie Mae, Freddie Mac”
January 28th, 2008 at 9:38 am
It is always interesting to read your thoughts.
I have a question: we know US obviously have a lot of problems but I am very concerned about UE too. SG scandal, Euro M3 is high but slowing and the way UE calculates their inflation deficit seems very “Putinesque†to me in the sense is prone to window dressing (if the US has a real inflation of about 7%, Europe now is in the double digits… and there is not a real UE countries balance sheet and income statement, and I think Trichet is a great banker by the way). Again in UE everything seems so good on paper and so bad when you talk with people… It is just my impression or someone else has the same perception?
Best regards,
February 4th, 2008 at 8:47 pm
Paolo,
I know that housing prices in London are now coming down (collapsing?), that bubble seems about over; Italy has lost its government yet again, and just announced declining financials for the coming year (somewhere in the 1% range). I have the feeling that things in the Nordic region remain fairly upbeat, but not so sure about the rest of Europe. There seems concern on this side about both France and Germany.
I would be interested in any other comments, EU (UE) or elsewhere, on on-the-ground reads of economic well-being.