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Alliancebernstein Income Fund Message Board

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  • dreedva dreedva Oct 12, 2004 10:32 PM Flag

    FNM-Comments on Motley Fool Article?

    Taxpayer01824,

    You're a bit more jaundiced than I am. But, you make some pretty good points. I won't argue the with greed and avarice points, only because it's now so rampant we just learn to live with it.

    My concerns about FNM are for the potential far reaching effects, ala Long Term Capital. I'm worried that FNM is at the base of a house of cards that may affect homeowners as well as a myriad of investors.

    Maybe others are less concerned.

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    • <<<I'm worried that FNM is at the base of a house of cards that may affect homeowners as well as a myriad of investors. ...>>>

      With the implied backing of the U.S. taxpayer I doubt FNM as an entity is in trouble but its management certainly should be.

      One statement by the motley fool article author is quite interesting:
      "Confusion and complexity reign at Fannie Mae, though. In fact, I'm willing to say something that analysts will likely find scandalous: I believe that Fannie Mae is unanalyzable."
      is the author trying to say that Fannie is on the cutting edge of quantum theory or something. This is about the same type of hype they applied to Enron at first until it was shown the crooks were just claiming borrowed funds as income to pump the stock.

      A greater danger to homeowners is using their house as collateral for borrowing funds to buy depreciating assets like an suv or to take a vacation this coupled with the out of control prices for health, energy, food, education and the spending habits of this irresponsible republican congress will have a far greater impact than Fannie.

      • 1 Reply to taxpayer01824
      • Just a couple of points:

        1. However choppy Fannie Mae's stock price may get, no way their bonds are in any jeopardy.

        2. The difficulty in analyzing is part of the legitimate differences between Fannie and FASB. The way SFAS 133 seems to require GSEs to account for derivatives hedges would lead to extremely misleading quarter-to-quarter changes in Fannie's earnings. If you believe as I do that the purpose of accounting is to provide an accurately insightful look at a company's performance over the long haul, attempts by Fannie to smooth earnings to reflect its true central tendency via an arguably reasonable interpretation of SFAS 133 is to be applauded. And, why hold GSEs to a standard not applied to the Fortune 500? Does anybody seriously believe that smooth, steady increase in GE's earnings under Jack Welch quarter-after-quarter didn't involve delaying recognizing some items and moving forward others? And why does the supposedly independent, objective FASB seem to be in league with those who have potential profits available should the GSEs be eliminated?

    • The bigger risk to homeowners and the economy related to Fannie Mae will be if its critics succeed in destroying it and turning all responsibility for the crucial housing sector to private lenders. Housing may or may not be a bubble, but you won't know the difference when liquidity vaporizes out of the secondary mortgage purchase market.

 
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