Hillary’s Fate
Following last week’s election results from North Carolina and Indiana, the question everyone is asking is will Hillary Clinton stay in or opt out? The best answer I can come up with is to track two key indicators of her presidential campaign. First, will supporters donate huge sums now like they did immediately after her win in the Pennsylvania primary? Second, will white, middle-aged female superdelegates stick with her or switch their votes to Barack Obama? If either one happens, then I suggest the Clinton campaign will be reduced to a crawl. If both happen simultaneously, then I am afraid there really is no gas left in her tank.
Denny Freidenrich
First Strategies LLC
Laguna Beach
Fannie Mae Mess
The recent earnings report from government-sponsored Fannie Mae should cause investors to question whether the very entity charged with saving the real estate market will actually need to be rescued itself.
The company’s first-quarter net loss was $2.2 billion, its third consecutive quarterly loss. Such a track record should have caused the Office of Federal Housing Enterprise Oversight to balk at expanding the duties of Fannie.
However, in today’s environment of rewarding bad behavior, the regulating body of Fannie has decided to lower capital requirements once an additional $6 billion is raised.
It doesn’t seem to matter that Fannie already has an ownership stake in 20% of the mortgage market and 40% of all mortgage dollars outstanding. And get this: If you combine the financial obligations of both Fannie Mae and Freddie Mac, you reach a staggering $5 trillion.
In fact, Fannie is on such a shaky financial foundation that it has just again lowered its dividend after cutting it from last year. And according to Bloomberg, the value of the company’s assets has dropped to $12.2 billion from $35.8 billion,since December.
By traditional financial accounting, the company currently has negative shareholder equity once all debt has been accounted for.
Additionally, in the company’s own words it warns of continued “severe weakness” in the housing market, predicting a decline of 7% to 8% in home prices and warning still of “credit losses larger than 2008” for next year.
Against this appalling backdrop, officials in Washington are somehow relying on both Fannie and Freddie to bail out the real estate market. They have even given the companies expanded authority and purchasing power in hopes the company can buy mortgages from banks and free up capital to make yet more loans.
Sens. Richard Shelby from Alabama and Christopher Dodd from Connecticut rightfully have their concerns. Showing at least some grasp of the underlying fundamentals,a rare feat in the economically illiterate world of the Beltway,both have tried to rein in the expansion of these government-sponsored companies.
Should that come as a great surprise given Fannie Mae’s checkered accounting history? Amazingly, however, the senators face stiff opposition from those who imagine Fannie and Freddie can somehow clean up the subprime mess.
In the ongoing credit crunch shell game, it appears that all they’re doing is shifting the burden from banks to Fannie and Freddie to buy some time for the housing market to heal. If the housing market does not make a quick price recovery,and by all indications that appears highly unlikely,the problems currently on the books of Fannie and Freddie may be transferred next to the balance sheets of the American taxpayer.
Given Fannie Mae’s troubles, by hoping it can somehow rescue the housing market aren’t we really just asking the guy who can’t swim to save the one who’s drowning?
Michael Pento
Delta Global Advisors Inc.
Huntington Beach
