Legacy Losses -- or Fresh Red Ink?If a sweater was 96.5% navy, do you think it would look navy-colored?
And if a chocolate bar was 96.5% dark chocolate, could the manufacturer bill it as dark chocolate?
And if the chance of precipitation was 96.5% . . . would you carry an umbrella?
What's with the inane questions? And the 96.5%?
According to Inside Mortgage Finance, that's the percentage of mortgage loans the government directly or indirectly provided financing for in the first quarter (The New York Times; 5/10/2010).
If housing finance isn't a nationalized industry -- at least temporarily -- I don't know what is.
"Near Collapse"
Based on Fannie Mae and Freddie Mac's recent results, the two companies need another $20 billion or so -- to survive another quarter.
As horrific as that number is, it's actually an improvement from their losses a year before.
What to do?
Some of the answer depends on whether that tidal wave of red ink consists of "legacy" losses -- incurred as real estate fell about 30% nationally the last four years -- or instead reflects ongoing, current losses.
Given Fannie Mae and Freddie Mac's famously bad accounting, no one really knows for sure.
"We Need the Eggs"
For now, the government is clearly consigned to writing that check quarterly.
But how long it can afford to -- or is willing to -- is a big question mark.
The dilemma recalls a scene from an early Woody Allen movie.
One of the characters complains to her friend that she has a crazy uncle who thinks he's a chicken.
"Why don't you send him to a psychiatrist?," the friend asks.
"We need the eggs," she replies.
P.S.: I know where to go to get at least a little of the capital needed to fill the Fannie/Freddie black hole: their former managements. As I recall, Franklin Raines et al walked away with hundreds of millions in pay during the period that these entities' losses were gestating (notwithstanding their Pollyanna financials).
That should make them poster boys for so-called exec pay "clawbacks."
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