Buffett Says Fannie Mae, Freddie Mac `Game Is Over' (Update2)
By Josh P. Hamilton
Aug. 22 (Bloomberg) -- Fannie Mae and Freddie Mac, the two largest mortgage finance companies, ``don't have any net worth,'' billionaire investor Warren Buffett said.
``The game is over,'' Buffett, the 77-year-old chairman of Berkshire Hathaway Inc., said in an interview on CNBC today. ``They were able to borrow without any of the normal restraints. They had a blank check from the federal government.''
Freddie Mac and Fannie Mae touched 20-year lows yesterday on the New York Stock Exchange on speculation a government bailout will leave the stocks worthless. U.S. Treasury Secretary Henry Paulson won approval from Congress last month to pump emergency capital into the companies, which account for more than half of the $12 trillion U.S. mortgage market.
Fannie and Freddie mispriced their products and ``kept existing because they had the federal government behind them,'' Buffett said. Berkshire had been among the largest holders of Freddie until about 2001, when it became apparent the company wasn't being run well, he said.
Fannie was created as part of Franklin D. Roosevelt's New Deal in the 1930s, a time when the U.S. economy was struggling to emerge from the stock market crash, industrial production had tumbled 50 percent and the unemployment rate rose as high as 30 percent. Freddie started in 1970, when the economy was strained by the Vietnam War.
U.S. Backing
Both have the implicit guarantee of the U.S. government, so they can borrow at lower rates than banks and make money by purchasing higher-yielding mortgages from home lenders, providing new capital for loans.
Buffett, ranked the world's richest man by Forbes magazine, said he made a $500 million bid on a Chinese stock ``not so long ago'' that wasn't accepted. He declined to name the company involved. Berkshire is based in Omaha, Nebraska.
He also said he traveled with Bill Gates, founder of Microsoft Corp., to a Canadian site for extracting oil from tar sands, though an investment isn't imminent.
To contact the reporter on this story: Josh P. Hamilton in New York at jphamilton@bloomberg.net.
Last Updated: August 22, 2008 08:01 EDT |
