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Strategies & Market Trends : News Links and Chart Links

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To: Jon K. who started this subject	6/10/2003 1:47:33 AM
From: Chris McConnel	of 29602

moneycentral.msn.com Model Behavior Jon Markman Freddie Mac scandal may spell market trouble The tragic turn of events at Freddie Mac (FRE, news, msgs) might look on the surface like an isolated case of one organization run amok, but it’s just as likely to have serious implications for the entire stock market. As reported on Monday, the board of directors that oversees the nation’s largest mortgage lender ousted Freddie Mac’s president, chief executive and chief financial officer over their lack of cooperation in an audit of procedures and risk controls. They were replaced rather quickly -- too hastily, in the opinion of some -- by Freddie Mac executives a little bit further down the chain of command. While a couple of brokerages defended the company and declared the management changes a positive for the stock -- UBS actually published a new price target at double the current level -- it’s difficult to understand why any of its numerous counterparties would wish to do business with it now, or whether it’s even responsible to do so. The action undermines confidence in such an important part of the economy -- the housing market -- at a time when the business seemed toppy anyway. Freddie Mac is an extremely complex company with billions of dollars in derivative and swap contracts not marked to market every day. The dispatch of the entire top management team looks to be a nightmare scenario that can only put the business in a state of temporary, if not long-lasting, paralysis. The lack of counterparty trust is what brought down Long Term Capital Management, and LTCM actually had somewhat more oversight than Freddie Mac has.

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