Fannie and Freddie Fall to Where They Belong

Showing that you own Fannie (FNM - commentary - Cramer's Take) and Freddie (FRE - commentary - Cramer's Take) must be the kiss of death for certain fund managers. I have never in my life seen more worry about these two companies, and I think the worry is justified.

Someone has to take the hit to get us out of this mortgage crisis. Right now, the Democrats could argue that Fannie and Freddie should, because the housing crisis isn't going away. But the Republicans want them destroyed -- oh come on, we know that -- and they are inclined not to let them do any more business. Oddly, the way to destroy them is to let them do what they want, because the losses are so staggering that the common stock would be obliterated in a free market with the companies left to fulfill their mandate.

But getting back to the stocks, it is so interesting that the big bulls on these two stocks have just gone silent. There were so many of them in the $50s and $60s and even more of them in the $30s and $40s, and we began to hear of bargains of a lifetime in the $20s. Now we hear nothing. Kind of like what we hear with MBIA (MBI - commentary - Cramer's Take) and Ambac (ABK - commentary - Cramer's Take) or PMI Group (PMI - commentary - Cramer's Take) and MGIC Investment (MTG - commentary - Cramer's Take), the latter two a crutch for FNM and FRE -- they loved personal mortgage guarantees -- that could really cause havoc for the government-sponsored enterprises' earnings if they go under.

The excellent article by Peter Eavis in today's Journal about the need to own up and raise equity could equally apply to Freddie and Fannie as it would to Citigroup (C - commentary - Cramer's Take), Bank of America (BAC - commentary - Cramer's Take), Washington Mutual (WM - commentary - Cramer's Take) and Wachovia (WB - commentary - Cramer's Take). (I by no means mean to leave out the M&Is (MI - commentary - Cramer's Take) and KeyCorps (KEY - commentary - Cramer's Take) and NatCities (NCC - commentary - Cramer's Take), but they are so pathetic, who cares anymore? )

I remain committed to the notion that the equity of FNM and FRE deserves to be substantially lower. Last week, I marveled at how neither company had taken out its low despite all of the major banks taking out theirs.

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