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Politics : Ask Michael Burke

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To: BSGrinder who wrote (55828)	4/13/1999 2:34:00 PM
From: Knighty Tin	Read Replies (1) of 132070

Kit, One of my fundamental precepts for investing, speculating or gambling is that those who bet a little to make a lot win over time while those who bet a lot to make a little lose. Not surprisingly for a contrarian, this is the opposite of common wisdom. In the case of Freddie and Fannie, they are expanding their assets into lower and lower quality and borrowing more at the short term variable to lend at the long term fixed. They are doing this to make up for the fact that spreads stink the house out in their business. So, not only will they face more bankruptcies, they also face huge risk if rates go up and even if spreads get even worse. All of this tremendous increase in risk has yielded Fannie eps up 12% this quarter. In my book, betting the ranch to make 12% growth instead of 8% is idiotic for any co. For a highly leveraged financial firm, it is beyond idiocy.

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