Wednesday, August 12, 2009

John Hempton on Fannie and Freddie's losses

I think he gets it right:

It is in the non-traditional guarantee business that Fannie Mae and Freddie Mac have reported the huge losses which leave them in such a precarious position. Some of those losses (particularly the losses on the hedging book caused by the conservatorship) will reverse. Some (end credit losses on junky subprime mortgage securities) will not.

That said – none of these loss categories is likely to expand in the future. If the GSEs wind up being a toxic mess for the government it won’t be on the losses already incurred – it will be on future losses.


Anonymous said...

GSEs are allowed to borrow to gamble on derivatives? That has to stop. They should stick to mortgages with sensible standards. I don't want to bail out any more high risk derivative bets. AIG was more than enough all by itself.

PlanMaestro said...

Great series, but those two brilliantly succinct paragraphs took it to another level. It filtered all the noice.

Kudos to the guy from down under.