Fannie Mae: Where the Bankrupt Only Get More Bankrupt

| About: Fannie Mae (FNMA)

Only in America can you go bust for nearly two years sequentially, quarter after quarter, and still continue to operate:

May 10 (Bloomberg) -- Fannie Mae (FNM), the mortgage-finance company operating under federal conservatorship, said it will seek $8.4 billion in aid from the U.S. Treasury Department after reporting its 11th-straight quarterly loss.

$11.5 billion this time, and they need more money. They've lost $137 billion so far and keep adding to it quarter after quarter, having long since burned the tiny residual capital they once possessed.

Remember, these are the folks who were geared 80:1 (and that's being kind in how we count it.)

It gets better, of course. They included a "going concern" statement, more or less, in a couple of places:

When Treasury provides the requested funds, the aggregate liquidation preference on the senior preferred stock will be $84.6billion, which will require an annualized dividend of approximately $8.5 billion. This amount exceeds our reported annual net ncome for each of the last eight fiscal years, in most cases by a significant margin.

This, in English, means, "we do not earn enough in a quarter to pay the dividend - that is, the interest - on the borrowed money."

In other words, there is no foreseeable future date at which the company can start reducing its indebtedness. In fact, it continues to dig a deeper and deeper hole the longer it operates.

Although Treasury’s funds under the senior preferred stock purchase agreement permit us to remain solvent and avoid receivership, the resulting dividend payments are substantial. Given our expectations regarding future losses and draws from Treasury, we do not expect to earn profits in excess of our annual dividend obligation to Treasury for the indefinite future. As a result of these factors, there is significant uncertainty as to our long-term financial sustainability.

Translated: "We are entirely dependent on sucking off the public teat for our survival. Should that end for any reason we will be instantly bust, as we do not earn enough money to pay the dividends and thus would be immediately in default."

There's no plan to fix this either. Not in the company and not in Congress.

Back when there was a rational market, the concept that the largest single financing source for home purchasers has been for two years and remains insolvent would produce an instantaneous and negative reaction in the stock market, for what should be obvious reasons.

But in the Ponziconomy, where nobody has to pay any debts (ever), a new economy has emerged that Americans should become completely aware and attuned to since they are now being tapped to pay off the debt of default European banks in the name of "euro stability," no such reaction is forthcoming.

One would hope that Americans recognize this "new normal" and take it into account when deciding whether to pay their debts for things such as homes, automobiles and credit cards.

After all, if it's good for Fannie and European Banks, it's good for you, right?

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