Freddie Fawning Ignores Bailout Facts

When, in the course of business media events, it becomes necessary for one media critic to dissolve the intellectual bonds that connect investors to a really dumb thought and to assume among the powers of the earth...

Oh forget it. I don't want to get carried away just because it's a spring Friday. But did you see the ridiculous claim, representative of many others on the subject, that went largely unchallenged in a New York Times article on Freddie Mac's(FRE Quote) miserable quarter?

I need to get to the bottom of it and might need your help, because rallying that stock on comparison to Bear Stearns(BSC Quote) ignores an expensive point of fact.

Here's the deal: Freddie Mac reported better than expected earnings on Wednesday, though in a way that made you want to watch your wallet. Accounting changes. We don't have to go through the gory details here -- there might be children in the room -- but let's get to that quote, one that represents an article of faith about Freddie Mac and Freddie Mac(FRE Quote) other financial companies and should obviously be put out of its misery ... and ours.

They Just Don't Get Freddie Mac!

Here is the quote, which was prominently showcased toward the top of the article, from the founder of a research firm:

"Both [Freddie Mac and Fannie Mae] these companies are clearly going to be insolvent by the end of the year, but everyone knows that Congress will do anything to keep them afloat, because if Fannie and Freddie go under, the entire global financial system will melt down. These companies' earnings don't matter. Their accounting hardly matters. People buy the stock because they believe the federal government will bail them both out if things get really bad."

See? Earnings don't matter. Accounting contortions don't matter. They are unofficially designated as "Too Big to Fail" by the United States government so they won't. Just like Bear Stearns, which got a government assisted bailout from JPMorgan Chase(JPM Quote).

The Times, in conventional journalistic mode, quickly gave Freddie Mac the chance to deny that it'll be insolvent, but on automatic pilot (if someone says something bad about someone else, give the "else" a chance to respond) they missed the larger point.