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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (87568)	12/26/2000 4:48:44 PM
From: Knighty Tin	Read Replies (1) \| Respond to of 132070

Mike, Here's the case against Fannie and Freddie: 1. Housing starts are turning down and housing sales growth is how they make their money. 2. They rely on their govt. "moral obligation" to keep the rates at which they borrow low. These moral obligations are not likely to be as strong in a recessionary environment. 3. The govt. may have to return to the credit market this year if GDP growth, and tax collections with it, cools off. Any competition from "full faith and credit" makes "moral obligation" look less enticing to bond buyers. 4. Their assets are leveraged incredibly and even a slight tick down can wipe out their eps, or at least destroy their growth rates. 5. They are favorite political whipping boys and nobody really likes them. In Washington, they are regarded as necessary evils. 6. They are at or near all time highs. 7. I am waiting for Freshmen Congressmen to start asking questions about their "obscene profits." I have no way of knowing what the long calls represent. However, if I were a major institution shorting the stock, I might buy an out of the money leap to hedge myself. Also, if I were shorting $70 calls, I might buy and out of the money to cap any possible loss on that credit spread. And, in fact, I did just that, though all those outstanding calls are not me. In the old days, maybe, but not any more. <g>