Fannie, Freddie Insolvent, Anybody hears that?

Mortgage lenders Fannie Mae (FNM) and Freddie Mac (FRE) are “insolvent” and may need a U.S. government bailout, former St. Louis Federal Reserve President William Poole was quoted as saying in an interview with Bloomberg. Guess what, this is what I wrote on 10 December’07

Delta Financials (DFC) just filed for Bankruptcy. My third encounter with a bankrupt  (Enron and worldcom were the earlier two and still have there shares teaching me lessons everyday). Is countrywide (CFC) too far from Bankruptcy? My bet it’s not but let’s see. Ok forget countrywide, what about Fannie Mae (FNM) which backs mortgages. If a homeowner defaults, FNM is required to buyback these loans at the original price, not the current value. They backed bad loans and must now buy them back. Just look at the current balance sheet:  $600 billions in long-term debt out of $760billions debt. Yeah, you may show $782 billions in Assets, but where is the bulk of investment? You guess it right. So how do you find money to buy back those loans? do you get the picture? The picture is not so much different for Freddie Mac (FRE) either. Have fun exploring their balance sheet and fine prints and I am sure you are about to decode interesting insights. Don’t tell me I am being too pessimist and too early, etc. Subprime is the talk of the town these days, but didn’t OP talked about BKUNA, NDE, NEW, Lend in Feb/Mar’07.

Profitable trading, OP







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