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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: smolejv@gmx.net who wrote (22071)	8/4/2002 10:51:13 AM
From: Box-By-The-Riviera™	Respond to of 74559

LOL!

To: smolejv@gmx.net who wrote (22071)	8/4/2002 3:02:57 PM
From: Snowshoe	Respond to of 74559

Hi DJ. Following up on our earlier discussion, I paid off 99% of my mortgage on August 1st. Just left a little in there so they will handle an upcoming escrow payment. I should have done this a year ago. Had a broker pitch me bonds from Fannie Mae and Freddie Mac the other day. I'm not buying... Poole: Fannie, Freddie Debt Poses Risk story.news.yahoo.com Sun Aug 4, 2:37 PM ET NEW ORLEANS (Reuters) - St. Louis Federal Reserve ( news - web sites) Bank President William Poole said on Sunday stock market woes were unlikely to derail the recovery as he urged action on potential sources of future instability in financial markets, including the heavy debt load of mortgage market giants Fannie Mae and Freddie Mac . "From what we know, it is reasonable to expect that the economic recovery will continue and that the stock market will in time settle down," Poole told the Council on State Governments' Southern Legislative Conference. However, Poole did not offer a detailed view on how the sharp, prolonged market sell-off might impact the economy, instead using much of his speech to discuss what he sees as possible sources of future financial market instability. In particular, he sounded a warning on the high debt load of so-called government-sponsored enterprises, or GSEs, such as Fannie Mae and Freddie Mac. "In the case of the GSEs, the massive scale of their liabilities could create a massive problem in the credit markets," Poole said. "If the market value of GSE debt were to fall sharply ... what would happen? I do not know, and neither does anyone else," he said. Fannie Mae and Freddie Mac, while shareholder-owned companies, were chartered by Congress to provide a deep and even flow of funds to mortgage markets, which they do by buying mortgages and repackaging them as securities for investors. Under their charters, the firms have credit lines with the U.S. Treasury, which -- although never tapped -- many think has contributed to a view in the market that the government would stand behind their massive debts. The two companies had $1.3 trillion in debt outstanding at the end of last year and, according to Poole, had guaranteed another $1.8 trillion of mortgage-backed securities. "The total of GSE direct and guaranteed debt is 40 percent larger than the federal government's debt," Poole said. He warned that if one of the government-sponsored firms came under a cloud, there could be a "contagion" impact with risk-averse investors viewing all the GSEs much the same. "I do not see any immediate risk of a GSE debt problem, but am not willing to assume that in different conditions in the future one could not occur," the St. Louis Fed chief said. "There is no doubt that a high level of debt increases the risk of financial instability," Poole said. "Firms fail when they cannot pay their bills." Poole said the credit lines the GSEs have with the Treasury Department ( news - web sites) should be withdrawn, adding that they could be replaced by credit lines at commercial banks. In addition, he said the companies over a period of years should add to the amount of capital they hold. He said both Fannie Mae and Freddie Mac hold a level of capital "well below" what is required of banks. Poole also said federal tax law could be changed so that it no longer encourages the issuance of corporate debt over equity, which he said it currently does because companies can deduct interest paid on debt but not dividends paid on stock.