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Biotech / Medical : Biotech Valuation
CRSP 57.05-0.6%Dec 9 3:59 PM EST
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To: Biomaven who started this subject3/10/2003 8:35:11 PM
From: IRWIN JAMES FRANKEL  Read Replies (1) of 52153
 
William Poole, President of the Federal Reserve Bank of St. Louis, today created quite a stir with his comments about Fannie Mae and similar GSE's. FNM and FRE together lost about $6B in equity market cap. I have no way of knowing but I bet the losses in the debt values were even greater.

I realize that the connections between valuing biotechs and other equities or real estate is convoluted but in a period where the market is responding in fear to every boggie man, the possibility of more contagion is worth noting.

Hear is the article:

William Poole*
President, Federal Reserve Bank of St. Louis

stls.frb.org

Here are my comments after reading the speech:

Poole makes a fine argument for strengthening the capital structure of FNM/FRE. The stability of these housing-critical institutions goes without question. Despite that he offers destabilizing* suggestions and fails to mention the one** way to easily, painlessly and with little risk, transition to a strong capital structure.

In my mind his solution is more likely to create the crisis (by triggering fear of instability) than to solve the problem. I would rather see two things done. First, make the payment of dividends fully deductable to the GSE's. Then, increase the emergency lending authority of the treasury to the GSE's substantially. Say $25B rather than $2.25B. Then no one would doubt the governments intention promote housing for our population which I view as a key governmental interest.

ij

* End implied government backing, remove emergency lending authority of the Treasury, force them to raise private capital.

** Promote the raising of equity capital by making it fully deductable to the GSE's and doing a little jawboning to get them to raise the capital to appropriate levels. Once appropriate capital levels are reached the higher lending limit by the government would be just so much paper with little or no risk. Even Poole sees that.
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