Watch Fannie Mae and Freddie Mac
But the losses in Freddie Mac's traditional book of business to the end of the recent quarter were simply not that large. Here are the losses to the end of the second quarter -- with the $5.8 billion being the total realized losses (i.e., where they foreclosed and realized a loss) and $25.2 billion being the provisions for future losses.
Cumulative losses actually realized to date are simply not large enough to have caused problems. The $5.8 billion was well within the previous common shareholder equity. If that were all the losses, it would have been lower than the operating profit of Freddie, and the company never would have been loss-making. Regardless, it is nowhere near the $91 billion of capital that has evaporated.
Even provisions -- although large at $25.2 billion -- do not come close to explaining the total losses.
I point this out to observe something obvious but hardly commented upon in the public debate. The traditional role for Fannie and Freddie -- guaranteeing traditional qualifying mortgages -- did not (or at least has not to date) caused losses that are in any sense unmanageable for the system.If this situation continues, it strongly supports the view that Fannie and Freddie can be bought back in their traditional role with relatively few risks to the public purse. That is a big "if." There are plenty of people including some journalists I respect a great deal such as Peter Eavis who are convinced that these losses will wind up being enormous. Peter is, however, working in the same "model-free" environment everyone else is. In a later post I will model losses in the traditional business. In other words I will try to predict the future.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV