The Frannie Debacle: Let's Give Credit Where Credit Is Due

Although a few of us have long had a pretty good inkling about where the share prices of Fannie Mae (FNM) and Freddie Mac (FRE) were ultimately headed (hint: it rhymes with "Nero"), it seems that many of those who are supposed to know best never quite "got it." Some, in fact, were totally clueless.

Of course, not every analyst covering the sector or every investor allowed to buy the shares of the two government-sponsored enterprises got things spectacularly wrong, though the list of those who did seems pretty extensive.

Regardless, there are some individuals and firms who deserve extra special recognition for their complete lack of competence. I am referring, in particular, to the analytical team at Citigroup (C), which steadfastly maintained a "buy" recommendation on Fannie Mae's shares over the course of the past year  (according to Bloomberg) -- as they plunged by nearly 99 percent.

Let's give these highly-paid "experts" a hand (or, maybe, if you are a customer, some other appendage?). (Hat tip to JJ.)

[Click on graph to enlarge.]

Comments

[Mumma:]

We apathetic Americans have let these conspiratorial folks (Paulson, Bernanke, our elected representatives, Goldman Sachs et al, ad nausea) systematically dismantle our financial system, our economy and the Constitution. Let’s quit looking at them as if they were looking after the country’s best interests because they are not, and never were. Change! We are indeed going to get change.

2008 Sep 09 01:26 PM

[mdmrjsds:]

Can you imagine walking into your performance review and finding this in your manger's hands? :-)

2008 Sep 09 04:57 PM

[Duude:]

I'd be amazed if I didn't know better what with all the finger pointing and blame going around that there is more to this than meets the eye. All the covering for one's own sins against honest negotiations, analysis, supervising etc... Heck, doesn't anyone know the definition of honesty, analysis or supervision is?
Let's revisit this fiasco and look at the parties involved. Starting with the mortgage companies and loan brokers who recklessly pursued loans for the sake of big income in a raging bull real estate market. There was hardly any supervision, no oversight. Why? The companies knew they were going to sell the loans anyway and since they knew they could sell just about anything with a signature, why not go for the gold? Large investment bankers would buy these loans that had been given a AAA rating by moodys, ambac, fgic, etc.... Why? Because they are insurance companies and shouldn't the law of large numbers apply? Would an insurance company insure New Orleans homeowners for wind damage and chock it up to the law of large numbers? Bad example eh? Hmmm, what about fiduciary responsibility? What about the large investment banks that bought the paper? Well, they did get their triple AAA rating, and the vast majority of the paper would be repackaged and sold to fannie mae and freddie mac anyway. Aren't they just passing the buck to the GSEs with a triple AAA rating? Did I say they get big bonuses if they do enough business? So they'll hold a bit and pass some to some hedge funds as well. Any problem there? How about fiduciary responsibility? But it has a triple AAA rating? With that attitude, they're likely getting paid too much. So, what about the GSEs? Aren't they doing their job? What about fiduciary responsibility? Did I mention how big the bonuses are if they do enough business? How did that pass muster after being exposed for cooking the books years ago? Its called skim a little off the top to pay Congress. Virtually, everyone else are owned as well. What everyone? Well, virtually everyone. Missed a few who stupidly refused to play by the rules. They got nothing. Interesting that most all of Congress with a few exceptions is now bailing the GSEs out. Not really, Paulson is bailing. Congress is just overwhelming supportive. So its the Bush administration that's behind this. Well, not exactly. They've been cowed into this because Bush is near the end of his second term and doesn't want to have the next President claim that he fixed Bush's mess . Didn't the Bush admin beg Congress to reform the GSEs after it was uncovered you were cooking the books? Yes, Ha Ha, isn't it sweet!! No loose ends. So why is Congress now screaming about golden parachutes? Well, the cash cow is dead so they need to cover their ass.

2008 Sep 09 09:31 PM

[Econ 101:]

Duude, you are mostly right except that it doidnt start with the mortagage companies. It started with the congress wanting to encourage home ownership and relaxing the rules. Encouraging the mortgage lenders to lend to anyone and everyone. Push the speculators to buy homes and bid up prices, especially in California.

In California the local tax base was stuck because of prop 13. They couldnt raise taxes until a house was sold. So churn the market, pump it up and local tax revenue goes up.

Dont worry, be happy - most Americans will have nice Chnese land lords in the next couple of years when they (and the rest of the Sovern Wealth Funds) spend their worthless dollars on real estate.

With 14% inflation now, what will it go to when CALPERS needs a bailout because its stock in FRE/FNM is worthless? When unemployment goes to 15%? Dont worry though, the parties in the Hamptons and on Nantucket will still go on.

2008 Sep 10 11:06 AM