Freddie Mac's New Top Officer Wins Praise as Professional

THE WALL STREET JOURNAL ^ | Wednesday, June 11, 2003 | PATRICK BARTA and GREGORY ZUCKERMAN

[presidio9]

On Wall Street, Freddie Mac's new chief executive, Gregory Parseghian, won quick praise as a financial pro who can restore credibility to the shaken mortgage behemoth.

But it may well be in Washington, D.C., where the fate of Mr. Parseghian -- and of Freddie Mac -- is ultimately decided.

[Southack]

When the dust settles, the scandal will revolve around some Clinton appointees who smoothed out numbers (sandbagging) to make it easier to meet and/or beat their future bonus targets.

Take away the sandbagging and FRE will be shown to have been MORE profitable than what was reported, with even more profits being reported in the future, IMO.

[Beck_isright]

Bump for later.

[AdamSelene235]

When the dust settles, the scandal will revolve around some Clinton appointees who smoothed out numbers (sandbagging) to make it easier to meet and/or beat their future bonus targets.

SOURCE?

[LetsRok]

Exactly. I work there and we will show more profit after the re-audit. This is all a crock. Our previous accountants, Arthur Anderson, interpreted the rules one way, and our new accountants interpret them another, thus our earnings have to be restated.

[presidio9]

In terms of setting the market, think of Freddie and Fannie in terms of a company that processes a comoditized product, like a tomato cannery. They have no input on market prices. Dealers like Solomon, Lehman, and Bear have some input on prices, but not a lot. That's the way Wall Street works. It is a lot more efficient than Walmart.

[AdamSelene235]

When the dust settles, the scandal will revolve around some Clinton appointees

Gee, who do you think Franklin Delano Raines is? We've got a Clinton butt boy running the biggest hedge fund in the history of finance.

[AdamSelene235]

Exactly. I work there and we will show more profit after the re-audit. This is all a crock. Our previous accountants, Arthur Anderson, interpreted the rules one way, and our new accountants interpret them another, thus our earnings have to be restated.

So what would happen to your the value of your trillions in derivatives if the assumption of liquidity was removed?

[presidio9]

Now Adam, get a hold of yourself. Fanniemae is not a hedge fund by any stretch of the imagination. And there are people at Fanniemae who know what to do and don't bother filling FR in on it.

[AdamSelene235]

Now Adam, get a hold of yourself. Fanniemae is not a hedge fund by any stretch of the imagination.

There is -$737 in debt per share. Walks like a duck, quacks like a duck.

And there are people at Fanniemae who know what to do and don't bother filling FR in on it.

Ah yes, there are wise benevolent men working selflessly to lower the cost of houses for us poor dump saps.

[presidio9]

There is -$737 in debt per share.

There you go oversimplifying things again. The company has a high debt per share ration because it is in the business of issuing debt. Fanniemae does not make cars. It adds liquidity to the housing market. And it is redundant.

[AdamSelene235]

. It adds liquidity to the housing market.

Yes, it is a money pump that has resulted in runaway housing inflation. They are sucking in cash from every corner of the Earth and stuffing it in the American housing market. There's a word for an increasing number of dollars chasing a fixed number of assets.

The GSE money pumps are why we have had a recession with no dip in consumer spending.

When this cycle reverses it will destroy fictious wealth far faster than it created it.

[presidio9]

Yes, it is a money pump that has resulted in runaway housing inflation. They are sucking in cash from every corner of the Earth and stuffing it in the American housing market. There's a word for an increasing number of dollars chasing a fixed number of assets.

I can't do this with you every time Fanniemae is in the news. Real estate went up because interest rates were low, not because people were looking for investments. Very few people invest in residential properties. They simply buy the nicest house that they can afford. Fanniemae makes them cheaper, not more expensive.

[Gunslingr3]

In terms of setting the market, think of Freddie and Fannie in terms of a company that processes a comoditized product, like a tomato cannery. They have no input on market prices.

Of course they have input on prices, that's inescapable as a market participant. If they decided not to sell tomorrow, what would happen to prices for similar securities? If they are 'securitizing' trillions of dollars worth of debt I fail to see how you come to the conclusion they 'have no input' on prices in that market. You also didn't comment on the moral hazard of GSE's as I attempted to make analogous with Wal-mart shoppers. Please understand, I'm not trying to 'win' an argument, I'm simply trying to understand how you've come to the conclusions you've presented. If people invest in Fannie and Freddie on the assumption their risk is covered by the federal government via the taxpayer, isn't it expected that the risk associated with those instruments would change if it was clear the government wouldn't bail them out? And wouldn't a different appreciation of risk lead to an increase in interest as people demanded more before putting their money on the line?

[AdamSelene235]

Real estate went up because interest rates were low, not because people were looking for investments.

Bwahahahaa...Plot the NASDAQ bubble next to FNM. You can see the capital flight. Now plot both of them vs M3. Its a very clear picture.

If we were to offer easy money and tax incentives for Picassos would that make them more or less expensive?

Where I live, they are still offering interest only loans. Zero down interest only with a 1 year teaser rate. Its helicopter money.

[presidio9]

Sorry if I don't have a lot of patience on this subject. I am not trying to "win" here either. It's just that there are a lot of people who have formed steadfast conclusions based on a tiny bit of knowledge, and a lot of conjecture. Fannie has transparent competition. To the market FNMA and FHLMC are seen as one in the same. If Fannie decided not to sell, Freddie would rejoice and sell more.

The "implied guarantee" in not nearly as important as people make it out to be. Fannie owns MBS against their debt issuance. This means that they have a stream of incoming principal to refund their debt. The loss of the implied guarantee would hurt FNMA's ability to raise funds going forward, which would have a negative effect on the housing markets, but it would not result in a bunch of defaulted debt that the government had to bail out. This is where I run into a problem with virtually every story written about FNMA and FHLMC over the past few years.

[Southack]

"Yes, it is a money pump that has resulted in runaway housing inflation."

Nonsense.

The median U.S. home price is $163,000. That's a mortgage payment of $800 or so per month, something that the average $46,000 per year family of four can easily afford.

What FNM and FRE have done over the last four decades is to kill the backwoods hucksters who were once the ONLY source of private mortgage funding for the poor (especially in rural areas). Kill FNM and FRE and the hucksters will be back with a predatory vengence.

And the way that FNM and FRE killed the hucksters was by providing a stable *secondary* market for mortgages. This allowed Joe Average or his Mom and Pop to start small mortgage companies, obtain either private or warehouse bank funding, and be able to sell those loans into an actively traded Market (as secured and insured packages).

Without the ability to sell those notes back to a secondary Market, the small players are effectively shut out the game, and the big players are priced out of poor and rural areas where population density kills their margins, thus ushering back in the hucksters who prey upon those who need a roof over their families' heads.

[q_an_a]

New head said to be "A big idiot that everyone will hate" "The least quilified person in his industry." /sarcasm off. Did anyone think the old people did not have good qualifications? sometimes it makes you wonder if even the WSJ is infected with people that can't get it right.

[AdamSelene235]

some Clinton appointees who smoothed out numbers (sandbagging) to make it easier to meet and/or beat their future bonus targets.

Yeah, I'll bet you a beer the extra money was generated by skimping on their interest rate hedges.

[AdamSelene235]

The median U.S. home price is $163,000. That's a mortgage payment of $800 or so per month, something that the average $46,000 per year family of four can easily afford.

Where? Alabama? Certainly not anyplace with jobs.

There are obvious bubbles in Texas,Colorado,California,New York, Mass,etc.