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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: MulhollandDrive who wrote (133470)	7/13/2008 2:09:13 AM
From: XoFruitCake	Read Replies (3) \| Respond to of 306849

"guess the concept of throwing good money after bad or down the rat hole as it were doesn't occur to the smartest guys in the room" no, the mortgage guarantee business is a good business. The pricing was not right for the 2004 to 2007 period, hence all the loss. If you step back, FNM/FRE essentially is in insurance business. They collect all the upfront fee to guarantee mortgage payment and once in a while, they lax in their execution and get creamed because they did not price the risk appropriately. But they have a sugar daddy in our government, so it is going to get recapped. And the key here is stockholder suffer a lot of loss too and that will be the price of the political solution. It is not unlike the Katrina situation where insurance companies get creamed because of the mis-pricing of hurricane insurance. But all of the insurance companies come back now. I know there is a lot of different opinions out there of whether this should or should not be done. But I don't see how our economy can function if FNM/FRE are not rescued. And I am talking about a lot of people losing job and business shutting down because of credit contraction when all the bank failure come because of the fallout of FRE/FMN (and their guaranteed paper). From investment perspective, this seems to be the turning point of the mortgage mess. We finally come to the point where the fundamental problem is being addressed. So long as FRE/FMN continue to be re-capped and pay the loss of the mortgage guarantee, the rest of the financial system can start to earning their way back and raise capital to pay for all the loss that they incurred in 2005 to 2007 before the rate hike to fight inflation. Banks are not good or bad, they are just one of the business that governed by greed and fear and make stupid mistake along the way. I think big money will be made in the next couple years longing the stronger bank, bank preferred and even CDO (if a retail investor like us can get access to it)..