OT, Amy J, RE: Fannie Mae
Is Fannie Mae overleveraged? Probably.
But the duration gap of 14 months that has the fixed income markets concerned is really kind of funny to me, because Fannie Mae has had a duration gap for forever. Yeah, it hasn't been 14 months the whole time, but 14 months isn't too far out of the normal range, either. It's the way their business operates. And they've made a ton of money in the process.
That doesn't mean that duration gap is necessarily innocuous. I've looked at Fannie Mae as a short numerous times in the past, primarily because of the leverage and the duration gap. It's never been enough for me to pull the trigger, but still, I think there's a modest probability of Fannie Mae blowing up that the market might not be discounting until recently.
As far as any government bailout is concerned, there's no question in my mind that if Fannie Mae blew up, the government would bail her out. I don't think that's right, but let's face it, the government bailed out Long Term Capital, an institution completely independent of the government. Fannie Mae operates under a federal charter and sells debt with an implicit US govt guarantee. No way the Fed allows Fannie Mae to go under. |
