The Five Dumbest Things on Wall Street This Week
The Five Dumbest Things on Wall Street: March 20
03/20/08 - 07:09 AM EDT
- Article Tools
- Email this Article
- Print this Article
- Rss Feed
- Related Articles
- The Five Dumbest Things on Wall Street: March 14
- The Five Dumbest Things on Wall Street: March 7
- The Five Dumbest Things on Wall Street: Feb. 29
- Del.icio.us
- Digg
- StumbleUpon
5. Safety and Soundness
Rest easy, America. The housing mess is about to turn around because the Feds are lowering capital requirements for government-sponsored mortgage giants Fannie Mae FNM and Freddie Mac FRE. Why in the world did these companies, which have implicit backing by the full faith and credit of U.S. taxpayers, have such strict capital requirements in the first place? After all, neither company could even report audited financials on a timely basis to investors until recently, and boy were those recent reports worth the wait. Fannie swung to a fourth-quarter loss of $3.6 billion on spiking credit-related costs, including a steep increase in money set aside for loan losses. Freddie reported a record $2.45 billion loss for the period. Created by Congress to boost homeownership, Fannie and Freddie own or guarantee at least 40% of the $11.5 trillion in U.S. residential-mortgage debt outstanding. Several years ago, both companies were mired in accounting scandals and forced to make earnings restatements totaling more than $20 billion -- dwarfing those of Enron and WorldCom combined. Their top executives were replaced, but the federal regulator that oversees the company has maintained that "safety and soundness issues" remain at both companies. Considering all these accomplishments, the geniuses in Washington D.C. have decided to reduce the 30% capital surplus it requires of both firms to 20%, a move that could provide up to $200 billion in immediate liquidity to the troubled mortgage-backed securities market. "We believe they can play an even more positive role in providing the stability and liquidity the markets need right now," said James Lockhart, director of the Office of Federal Housing Enterprise Oversight. The Bush administration appointed Lockhart to replace his predecessor Armando Falcon, after the former regulator published a report detailing the "systemic risks" to the financial system posed by the growth at Fannie and Freddie. Until recently, President Bush has sought to force the companies to reduce their holdings of mortgages and related securities, arguing that they were taking too many risks. Apparently, he has now decided that Fannie and Freddie haven't taken on enough risk.
Dumb-o-meter score: 95. How about another tax cut?
Eli Lilly's diabetes problem; Spitzer spit out; Joe Lewis' second thoughts; Blackstone's compensation conundrum; WellPoint predictions prove offpoint.
Buffett's dollar doubters; GM on the Fritz; Third Avenue beatdown; Citi's man in Dubai; WaMu moves the goal posts.
Talk depresses Toll; Pfizer's phony rowing; Another Countrywide cancellation; Citi Traders' high water mark; Yahoo!'s galvanizing distraction.
Yahoo! is among the most searched stocks on TheStreet.com. Here's what Cramer had to say about the stock recently.
Catch up on his thinking on the hottest topics of the past week.
Investors will have to deal with a Fed meeting and another flood of earnings and economic data.
Ensco International and Echelon have the potential to move higher in coming days.
See who made what calls.
The addition of video is helping telecom companies compete against cable and satellite companies.
The June West Texas Intermediate contract reflects selling pressure ahead of Tuesday's expiration. But stocks in the sector are generally trading higher.
See who made what calls.
Keep on top of the market and the critical information you need to make more profitable investing decisions.
Sponsored by:
RSS
