The New York Times has a story today based on a leak from a former employee of Fannie Mae, alleging that Fannie Mae’s risk of loss due to to interest rate movements is larger than they had previously admitted. Fannie and Freddi are “Government Sponsored Enterprises”, large quasi-public entities that issue large amounts of debt and use the money to purchase or insure mortgages.
In the past, CEO Raines has claimed that their computer simulations show that they could withstand a “nuclear winter” scenario consisting of a ten-year depression with interest rate movements of plus or minus six percent, with their share holder equity intact. This claim is highly dubious because Fannie own or underwite trillions of dollars of mortages on a very narrow base of equity. And even if Fannie could hedge its interest rate risk through the purchase of interest rate derivatives, they would be merely passing on the risk to the seller of the derivative. They represent one more pyramid of paper built on nothing in our massive fraudulent fiat money system.
Fannie’s rather far-fetched reassurances of their robustness is called into question by this story:
annie Mae, the giant mortgage finance company, faces much bigger losses from interest rate swings than it has publicly disclosed, according to computer models used by the company to estimate the value of its assets and debts.
At the end of last year, the models showed that Fannie Mae’s portfolio would have lost $7.5 billion in value if interest rates rose immediately by 1.5 percentage points, internal company documents provided to The New York Times indicated. At that time, the market value of all the assets on Fannie Mae’s books, minus all the company’s debts, was about $15 billion. So it would have lost roughly half its market value from such a sharp increase in interest rates, according to the models.
