On Freddie Mac Accounting Change
Submitted by
CalculatedRisk on Wed, 05/14/2008 - 10:55am (94 comments)
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When do we start lining up and shooting these people?
BTW... FIRST!!!!
sounds like stated income, no docs either. we know how this ended up.
Welcome to the Freddie Mac channel....all Freddie....all the time....if you don't like it...you can kiss my Fannie.
"Mr. Piszel said the negative fair value reflects current distressed prices for mortgage securities and has "no impact" on the operations of a company like Freddie that is a long-term holder of mortgages."
"It'll be fine. It'll all be fine. I invite you to have another drink in the first class lounge, dance in the Grand Ballroom, and enjoy all the fine amenities that the Titanic has to offer."
Could somebody explain this to me?
"the negative fair value reflects current distressed prices for mortgage securities and has "no impact" on the operations of a company"
They have "no impact" until you get no payments in the short-term and, then, you want to sell them in the long-term, and they are worthless. And, then, the impact is on the taxpayers, not Frederick. Something is wrong with that.
I think it means they are inslovent but still have credit available to keep doing business. So what if their product produces a loss, they will make it up in volume.
Bob...
The quality of those cheap rivets has little impact on my long term view, because I only expect to be on this boat for what a few weeks? What's a few weeks in the course of a lifetime?
they will make it up in volume.
lol!
LOL@ Barley
Party on Wayne.....
Party on Garth!
O/T
More credit - folks get creative
SACRAMENTO, Calif. - Gov. Arnold Schwarzenegger will propose borrowing against future state lottery revenue to help close a budget shortfall estimated as high as $20 billion, administration officials told The Associated Press.
Yahoo! 404 - Page Not Found
Whatever. If you can mark assets and liabilities wherever you want why would anyone lend, or better yet buy the equity. There is only one way it should end - in bankruptcy. I say "should" because that's not going to happen as the Fed would most definitely bail out Freddie and Fannie. However, if the equity holders are not wiped out in that process then the end of capitalism is nigh.
SACRAMENTO, Calif. - Gov. Arnold Schwarzenegger will propose borrowing against future state lottery revenue to help close a budget shortfall estimated as high as $20 billion, administration officials told The Associated Press.
Now this looks like a rock-solid plan. Who here doesn't think lottery revenues will skyrocket in the next few years as people get more desperate? Genius!
I can't get a good market price for my kids. I've moved them to Level 3. In Level 3, no one can hear you scream.
borrowing against future state lottery revenue
A penny borrowed is a penny earned, right?
Level 3 is a concept that a packrat like myself can really cherish.
I don't have a bunch of junk in my attic, they are "Level 3 Assets"....thank you very much!
borrowing against future state lottery revenue
Why doesn't the state buy up all the lotto tickets and keep the winnings for itselve?
There's a twisted logic to it though. As long as they can raise capital to cover the current crop of losses and write profitable new business they can continue on and perhaps work their way out of the hole over time. It's only when no one buys that story that trouble really ensues.
It reminds me of when they were building the Chunnel and successive sets equity and bondholders kept getting diluted. At some point, someone was going to be able to cry "Winner" and each group thought they were the smart money.
Nasdaq doing the Acapulco Leap!!!
SS - in the Chunnel case its gone bankrupt at least two times (if not more) and was recently close to going bankrupt again.
I love how the justification for all these asset moves to Level 3 is basically that the market doesn't work.
To expand on the theme of Barley's comment - Freddie is going stated income, no docs - I'll add that Freddie is stubbornly sticking to an asking price well above market valuations.
Freddie will probably make money on the business it's doing now, with increased fees and down payment requirements. Not enough to make up for (not yet recognized) losses from the past few year, but still, no reason to shut them down. I am surprised they admitted insolvency so soon - I thought it would be a few more months before they had a negative official fair value.
Enron accountants found at last. Another mystery solved.
jo6pac
SS - in the Chunnel case its gone bankrupt at least two times (if not more) and was recently close to going bankrupt again.
Just so -- that's why the logic is so twisted. It's the greater fool theory in action. All the equity infusions by SWFs, LBO Funds,HFs, etc... are, like the Japanese US real estate experience, likely to head down the same road. On the positive side, it does buy time in the interim for a) markets to stabilize and b) dumb money to absorb the first losses. As a US taxpayer I can't complain about that part of it.
This would blow a gaping hole in my investment thesis....
Pimco's El-Erian says the Fed's move to let securities firm borrow directly through its discount window will likely evolve into a permanent facility:
Pimco: Tricky for Fed to fix economy bind
| Reuters
Another outside reversal day shaping up for stocks. Let's see - foreclosures accelerating, house price declines accelerating, level 3 assets accelerating. It's all good. I had a mild bout of optimism for a while, given how pro-active the Fed was being, but I'm sliding back towards the uber-bear camp now. The majority of large financial institutions in the US are probably technically insolvent if realistic criteria are applied.
In Level 3, no one can hear you scream.
Level 3 Assets = Schrödinger Assets... if you look at them, they die so don't look.
Woh man! I just stepped into the room where the shove the sh...erm...Level III asses...asseTs...PEW!
You do not want to get a wiff of that palce.
Cheers,
"Why doesn't the state buy up all the lotto tickets and keep the winnings for itselve?
Brilliant!!! The Supreme California Soviet unanimously endorses this Plan. Soon all workers will be wealthy beyond their wildest dreams. All Hail Chairman Schwarzenegger!
wow! i'm just marvelling at that Nasdaq/dow/sp/russell swan dive starting at 2:34pm. gotta admit i was hurting up to that point. LOL again!
market manipulation? nah!!
Clyde said: "Pimco's El-Erian says the Fed's move to let securities firm borrow directly through its discount window will likely evolve into a permanent facility:"
That idea didn't shock you did it, Clyde?
I think a lot, if not most or all, of the unprecedented actions will be come permanent fixtures. And then they can expand.
Maybe Level 3 assets = Heisenberg Assets. The more precisely you try to measure them, the more uncertain you become about the relative solvency of the financial institution?
STATED EARNINGS, STATED EARNINGS, STATED EARNINGS!!!!!!
LMFAO
"SACRAMENTO, Calif. - Gov. Arnold Schwarzenegger will propose borrowing against future state lottery revenue to help close a budget shortfall estimated as high as $20 billion, administration officials told The Associated Press."
I liked his first plan better: releasing X thousand non-violent offenders (largely for drug possession) 20 months early and cutting back on the corrections budget. But the Dems wouldn't have it: slimey evil prison guard union is too powerful.
And I LIKE unions. Just not sleazy and corrupt ones. Unfortunately, that includes many law enforcement / firefighters unions, and Corrections is the worst of the bunch.
"SACRAMENTO, Calif. - Gov. Arnold Schwarzenegger will propose borrowing against future state lottery revenue to help close a budget shortfall estimated as high as $20 billion, administration officials told The Associated Press."
lets see. Vegas revenues down big. CRE projects failing there. Casino stocks down maybe 40-50%.
looks like lottery tickets are an "underperforming" asset to me.
And I LIKE unions. Just not sleazy and corrupt ones. Unfortunately, that includes many law enforcement / firefighters unions, and Corrections is the worst of the bunch.
In the USA, you have to be a sadist and/or a mindless gov't drone to be a prison guard, so this would follow.
This would blow a gaping hole in my investment thesis....
Pimco's El-Erian says the Fed's move to let securities firm borrow directly through its discount window will likely evolve into a permanent facility:
It's not too surprising -- he's said similar in the past. Pimco is loaded with toxic securities as well as large treasury positions -- imagine if a reduction in direct foreign investment, or rising interest rates, collapses the treasury market...
The facilities will most likely be unwound as institutions are able or forced to write down the swapped securities. I certainly don't see this Fed forcing defaults.
Talk about "accounting games". Sheesh.
OT- Chunnel finally turned a profit last Q as the move into St. Pancras has boosted traffic.
Clyde writes:
This would blow a gaping hole in my investment thesis....
Entire sets of textbooks will have to be re-written.
i'm of the opinion FRE is setting up for a nice little swan dive itself.
Freddie also reported that the "fair value," or estimated market value, of its net assets was a negative $5.2 billion...That means the estimated market value of assets falls short of estimated liabilities...
Doesn't this mean that the firm is bankrupt? What am I missing?
I'm of the opinion that the gov't should increase taxes on all investment bankers and banks to 90%. And should they choose to try to set up shop in another country, the US should appropriate all their assets (if any). Furthermore, this is 90% on all gross income to it or any affiliates. The culpable should pay. Leave me out of this mess.
Sounds like Enron revisited.
"the negative fair value reflects current distressed prices for mortgage securities and has "no impact" on the operations of a company"
He means that Freddie plans to hold the MBS all the way to term and will not realize the loss to increase in Agency MBS spreads. In a forced liquidation scenario it would matter, since the retained portfolio MBS would be sold at a loss and would not cover the Agency debt that finances the position. However a forced liquidation of the retained portfolio is not going to happen, there is no upside in any scenario for the Feds to force this.
It does mean there was poor allocation of capital by management - Freddie capital was committed to buy MBS at unattractive spreads/returns. Capital that is therefore not available now to cover losses, buy Agency MBS at attractive spreads, guarantee mortgages at attractive rates, etc.
I'm of the opinion that the gov't should increase taxes on all investment bankers and banks to 90%. And should they choose to try to set up shop in another country, the US should appropriate all their assets (if any). Furthermore, this is 90% on all gross income to it or any affiliates. The culpable should pay. Leave me out of this mess.
Elvis
i'd vote for that except i would make it retroactive beginning around 1998.
The bet they're making is simply this: they're betting that the securities and underlying mortgages will payout at a higher value than the market currently is assuming.
In other words, if a security is currently valued by the market at 90cents on the dollar (and they paid full face value), they could sell it today for a fair value loss of 10cents.
Or they hold the security to maturity in the bet that it will pay out better than today's market price.
The Chunnel will be fine. It is a long term investment and provides an alternative to flying (energy expensive) and sea travel (slow).
So it doesn't satisfy the short term cravings of the market. It resulted in a real good. Think about that as thousands of houses are bulldozed in the next few years.
Of course the bet could go against them as well -- the securities could payout at rates below than they could receive from other buyers today.
Of course in the back of the picture, there is always the biggest bagholder in the world: you and me.
Anyone want to bet where we're headed?
Why doesn't the state buy up all the lotto tickets and keep the winnings for itselve?
Can we divide the lottery tickets into tranches ? Maybe sell some to the IBs on wall st.
If freddie is technically insolvent,how can they keep operating - where will they find funding? I wouldn't lend to them my money for sure..
Can we divide the lottery tickets into tranches ? Maybe sell some to the IBs on wall st.
RayOnTheFarm | 05.14.08 - 5:06 pm | #
The fed is ready to trade T-bills for those.
Meanwhile, Arlen Specter wants an independent investigation into the NFL Spygate case.
World's most obese man vies for different record
| Reuters
Check out this guy. It's not OT because we're talking about big asses here, right?
He's all ass.
finn writes:
If freddie is technically insolvent,how can they keep operating - where will they find funding? I wouldn't lend to them my money for sure..
Citizen, remain where you are. Representatives from the Ministry of Love are on their way...
Fannie can raise money because there is still a non zero probability of future payoffs. Whether they are 'technically' insolvent is not really relevant.
All investments are gambles.
``the underlying performance of our business''
Did they have a misprint? It should be "the lying under performance of our business".
Anyone want to bet where we're headed?
Mr. Beach | 05.14.08 - 5:06 pm |
i agree about where...but the bet i want to book is when...
the bushies are trying to hold on by their fingernails until the end.
In law there are two kinds of insolvency.
Legal insolvency = liabilities exceed assets.
Equitable insolvency = can't meet obligations as they mature.
Of course both can exist at the same time.
I assume here that Freddie is legally insolvent (liabilities exceed assets) but not equitably insolvent (can still pay its obligations as they mature).
For Barney Frank, for Tanta, for GSE`s!
In the USA, you have to be a sadist and/or a mindless gov't drone to be a prison guard, so this would follow.
TCA | 05.14.08 - 4:30 pm | #
some are...mindless and or mean but some are fairly professional...takes street smarts and interpersonal skills of a strange kind, to keep the lid on and put the breaks on the violence in prison.
also depends on the individual institution...some are small cities with school, work, recreation, visitation, etc going on all around...and some are cages with prisoners locked up in cells most of the day.
Usually, of course, it's the other way around -- plenty of assets, but can't raise the cash to pay current maturities. This often means Chapter 11 "bankruptcy protection" rather than Chapter 7 "bankruptcy liquidation".
In Freddie's case I guess they think if they can just hold out long enough, everything will work out OK.
From the OECD (no link just PDF)
"OECD Composite Leading Indicators signal slowdown for major OECD economies
The latest composite leading indicators (CLIs) suggest that a slowdown in economic activity lies ahead in the OECD area. March 2008 data indicate a weakening outlook for all the major seven economies. The latest data for major OECD non-member economies point to a potential downturn in Brazil, China and India while continued expansion is ahead in Russia.
The CLI for the OECD area fell by 0.5 point in March 2008 and was 3.2 points lower than in March 2007. The CLI for the United States fell by 0.9 point in March and it was 3.6 points lower than a year ago. The Euro areas CLI decreased by 0.7 point in March and stood 3.3 points lower than a year ago. In March, the CLI for Japan increased by 0.4 point, but it was 4.3 points lower than a year ago.
The CLI for the United Kingdom fell by 0.7 point in March 2008 and it was 2.6 points lower than a year ago. The CLI for Canada increased 0.3 point in March but was 1.1 point lower than a year ago. For France, the CLI decreased by 0.5 point in March and was 2.3 points lower than a year ago. The CLI for Germany fell by 0.5 point in March and was 3.1 points lower than a year ago. For Italy, the CLI decreased by 0.8 point in March and stood 4.6 points lower than a year ago.
The CLI for China was up by 0.1 point in March 2008 but stood 1.6 point lower than a year ago. The CLI for India fell by 1.3 point in February 2008 and was 1.6 point lower than in February 2007. The CLI for Russia increased by 0.1 point in March, and its level was 3.2 points higher than a year ago. In March 2008 the CLI for Brazil dropped 1.9 point, and it was 1.4 point lower than a year ago. ..."
Hohumm. So, shouldn't even legal insolvency mean bigger spreads for freddie debt, a junk rating etc?
also from the same article in the WSJ
"Last week, Freddie's main rival, Fannie Mae, reported a loss of $2.2 billion for the first quarter. The two government-sponsored companies own or guarantee the bulk of all U.S. home mortgages, and they have suffered heavy losses since mid-2007 amid a surge in defaults ..."
it's magic...now you see it,
now you don't!
ta da!
so one would guess fannies is gonna re-state too, right?
Perhaps opening more casinos would be an outstanding idea.
Not only would tax revenue increase but so would GNP.
On a different note, releasing those quasi criminals early could be a great idea. This opens more room for the people who should be in jail.
Hey numbers are just numbers, why not just make 'em up? If the result makes people happy, what's the harm? We haven't expected to be told the truth in a long time. Bush has, for example, just said that the US "never tortures." Sure we don't, sure we don't.
After market close, Syron had a brief interview with Michelle Caruso-Cabrerra. She actually asked him if it would make more sense just to nationalize the GSEs, so that they would have no obligation to shareholders, only to the GSE "mission." Syron replied that shareholders were extremely important, as shareholder equity is the last line of defense for the taxpayer.
What a nice thought for those long the GSEs.
Nothing like goosing the unseen Level 3 assets tenfold to "smooth out the dips". I assume that once the mortgage market rebounds, and the real assets begin to regain value, we will see a corresponding drop in Level 3 assets...smooth upward growth year after year. Isn't this the desire that got Fanny & Freddie in trouble several years ago?
It also proves that Ken Lay isn't dead, he's assumed a new identity and found jobs for all the Enron accountants.
As soon as something becomes unsaleable, you declare that it can't be marked to market, make it level 3, and call it whatever you want.
How beautiful is that?
How nice. How very nice.
All these shenanigans will lead to a biggest collapse in the US financial market. A lemon will be a lemon, no matter what one can do to it. The long term damages are immeasurable. We need Paul Volcker badly in this uncertain time. We need to restore the credibility of the US.
He means that Freddie plans to hold the MBS all the way to term and will not realize the loss to increase in Agency MBS spreads. In a forced liquidation scenario it would matter, since the retained portfolio MBS would be sold at a loss and would not cover the Agency debt that finances the position. However a forced liquidation of the retained portfolio is not going to happen, there is no upside in any scenario for the Feds to force this.
But there is something more fundamental here than forced liquidation.
The market is saying that holding-the-debt-to-term will not result in the amount of dollars to cover the face value.
Therefore, saying it has "no impact" on operations is betting that the payments will keep flowing, which is EXACTLY what the market is saying won't happen.
"We need to restore the credibility of the US"
Not really possible, i'm afraid ....
I love accounting standards. The answer is always just what you want. God bless America!
John Mauldin addressed this last month when he said the Government oversight people said, Fair value was never meant to apply to properties that are trading in distressed markets. So they were allowed to mark the books to a model value instead of writing them down to actual market prices. He thought that it was designed to buy time to let the big boys recover enough profits to take the losses. In the 1980s they did a similar thing with Latin American bond defaults and the first write-offs didnt happen until 1986. Japan has been carrying worthless stuff at face value for years and their economy is suffering for it. Look for more.
It's funny. Basically, Freddie's CFO is saying, "Yeah, the balance sheet looks like crap, but the income/cash flow statements are humming right along." But here's the problem. He either forgot, never knew, or won't acknowledge the following truism regarding spread lenders: "The income statement represents the past; the balance sheet represents the future." And the future doesn't look good.
I'm still not clear on the end-game, or the scenario which would force Freddie to threaten bankruptcy to get a Fed bailout (assuming the Fed will do that rather than let them go under). Could they not just move any bad loan to "level 3" once the market realizes it's bad, and continue to account for it at full value? Are they not also holding real estate in the same situation, waiting for a re-inflation which is unlikely to occur?
Is the $38 billion the amount of money they have to pay the interest on the bonds they have created based on the now-worthless "level 3" mortgages and/or real estate? So when they burn through that (and assuming they aren't able to raise additional capital), at that point they are done?
I just want to know when they are going to be forced to unload their REO inventory and force everyone else in the industry to value their assets to market; aka "the day of reckoning". Anyone know their burn rate paying bond interest in $156 billion of "level 3" MBS's which are presumably now worthless? At 10% that puts them 2 years from bankruptcy, but only ~5 months from below statutory requirements, as far as I can tell...
The market is saying that holding-the-debt-to-term will not result in the amount of dollars to cover the face value.
The market isn't saying anything because there is no market on this stuff - it isn't traded & isn't about to be traded. They don't have a clue what the stuff is worth or what it would trade for and aren't about to risk finding out.
That doesn't make the assets good nor does it make them worthless - the damned things are completely unknowable.
So we wait to see if the cash flow streams materialize as modeled or not.
the damned things are completely unknowable.
So doesn't that move them from Schoedinger and Heisenberg into Godel's accounting?
Dryfly, the 60 day delinquency amounts suggest that the level 3 assets are not going to cure - ever.
Hohumm. So, shouldn't even legal insolvency mean bigger spreads for freddie debt, a junk rating etc?
Accounting rules allow financial firms to mark-to-market the value of their own debt and record it as profit.
For example, let's assume I borrow $1 from Jill and lend it to Bob. Jill now holds my IOU and I hold an IOU from Bob. Now, lets assume that people being to worry about Bob's credit and IOUs from Bob start to trade around 90 cents on the dollar.
When I calculate my personal balance sheet, I would show a negative net worth of 10 cents. The market value of Bill's IOU minus what I owe Jill.
Now, Jill is perfectly rational, she quickly figures out that if Bob didn't pay me back there wouldn't be any chance of me paying her back (because I don't two cents to my name). So my IOUs should also trade at 90 cents.
Now, when I calculated by personal balance sheet I would mark down my IOU to Bob and record a 10 cent loss but I would also get to record a 10 cent gain because my IOUs is worth 90 cent.
In other words, if Bill only pays me back 90 cents on the dollar I can go out and buy my IOU on from Jill for 90 cents and get away free and clear with zero profit or loss!
But, what Jill believes that if I get into trouble my rich uncle (lets call him Sam) will bail me out. My IOU may still trade at 100 cents on the dollar while Bob's trades at 90 cents on the dollar.
The implied backing of my rich Uncle Sam means that I have a negative net worth!
Here's the deal:
In 2009 a 3rd Corporation will be capitalized by .gov for ~$100 billion to de-lever FNM/FRE. Similar to the HOLC of the Great Depression, but this company won't be doing refinancing...we prefer to privatize profits in America.
Cheers!
"I can't get a good market price for my kids. I've moved them to Level 3. In Level 3, no one can hear you scream.
12th Percentile | 05.14.08 - 3:42 pm"
RFLMAO!
Oh man, it is SO sad that I'll be laughing at this even all day tomorrow. And if somebody would ask, I'd reply .. "Level 3 .. get it?", and they'd say "What the hell IS wrong with you???"
why do these guys (FRE, FNM) have any credibility left?
finn writes:
Dryfly, the 60 day delinquency amounts suggest that the level 3 assets are not going to cure - ever.
finn | 05.14.08 - 8:20 pm | #
That still isn't a 'market price'... you aren't trading them when you say that.
There definitely is a major difference of opinion between vulture funds who want to buy the stuff cheap if not get it FREE (and from what I've read there is quite a war chest building in hedgies & PEs in anticipation of these lovelies coming to market) and what Fanny & Freddy say they believe they are 'worth' (do they even believe that themselves? who knows).
Point is that still doesn't constitute a market and as long as there isn't a 'cash event' forcing them to dump them it will remain little more than a disagreement.
So will there be a cash event forcing them to liquidate? If so when & what would precipitate such an event.
THAT is the answer I'd like addressed - not all the protest & whining from the short side community pissed that their bets haven't paid out yet. I'd like to know whats it going to take to push F&F to put these up for sale & how soon IF ever.
Anyone?
dry - That will be when either a) somebody's cash runs out and they really are forced to sell or b) the vultures and hedgies just can't stand to sit on the sidelines anymore and start to make higher bids.
a) could be any day now, b) just a little bit before hell freezes over.
Dryfly, my point was more in the line that the paper is never going to pay back as much as it was originally supposed to. I'm not saying the paper should be worth zero, neither am I short any financials anymore. Granted, I used to be, dsl cfc imb fed... but never fre or fnm. Too big to fail, imo.
Anyway, for those who think that the level 3 paper is going to be better, take a look at the delinquency stats. The bids may rise from current level, which is pretty much "no bid", but the bids won't ever be stellar for stuff that is over 20% delinquent 60+.
"I'd like to know whats it going to take to push F&F to put these up for sale & how soon IF ever."
Dryfly, I would guess that as long as an official accountant does not come along and say "you cant do that in level 3", and while these entities remain quasi government sponsored then nothing will happen ever.
And while F&F and FHA etc are more or less the sole source of mortgage lending these entities will not fail.
In a couple of years or less a normalisation of the mortgage market will occur or at least that can be a reasonable bet and whoever controls the world at that point can then decide how best to work this out.
For now one way or another house prices will rise to meet the value of money to get the ship off the rocks.
Dispite all the whinging going on here if steel and copper and you name it are going thru the roof then a house has to be worth something too.
I am feeling a bottom here.......one way or another. It could be a bouncy bottom or a firmer one.
I see that John Deere had a 22%? profit increase just as could be predicted from your comments to this board.
One way or another the USA remains an economic and geo political force to be reckoned with
The 92B subprime assets in L3 are not worthless, and similar bonds are trading from $55 (ABX last cashflow) to $95 (first cashflow bonds) FRE and FNM usually own a whole senior cashflow. There is a market for these types of bonds. To price, calculate a weighted price of ABX AAA, penultimate ABX, plus the first and second cashflow bonds. The price is somewhere over $80. This is because subordinate bonds absorb first loss and protect the seniors from about 30% losses, (can sustain 60% default and 50% severity.) (subs were mostly sold to CDOs)
Worried: Yeah, sure - housing prices will rise. Care to explain how anyone is going to PAY for the houses with incomes declining, jobs vanishing, and inflation out of control?
Yes, they will prop up housing prices for as long as possible, but that doesn't mean anyone will be able to buy the houses. They'll just make up numbers for their "value," swap them back and forth and record that as "profit" and nobody will disagree. Meanwhile, an increasing number of people will be homeless, wandering the streets that are lined with crumbling foreclosures that are "worth" $500,000+ or some absurdity.
"Yeah, sure - housing prices will rise. Care to explain how anyone is going to PAY for the houses with incomes declining, jobs vanishing, and inflation out of control?"
If inflation is out of control the houses will be relatively cheap and incomes for those with jobs will rise.
This is not a permanent fix of course. But it delays things.
I know it looks real bad. But can it really really really be so bad?
Bad yes. But so bad?
Don't forget Year-over Year Net Interest Income for these clowns was up only 3.5%. That's the core earnings power for this organization and I don't think that's stong enough to repair the hole. Anybody that would give these guy more capital is a fool........and that includes the Congress (with taxpayer money). The dilution effect and the hit to earnings available to common shareholders is going nowhere (especially if the issue more perferred at 7.5% plus).
It's so easy to take cheap shots and roll the innuendo, but a careful reading of Freddie's 07 annual and Q1 08 reports reveals that Freddy elected to mark to market securities that are good economic offsets to items already marked to market - the biggest one being the guarantee asset. As for transparency, changes in value of trading securities go straight to income, changes in value of available for sale go in Accumulated Other Comprehensive Income. I have a lot of respect for CR and Tanta, but this kind of coverage just turns Calculated Risk into a cranky old blogspot.