Fannie Mae is a money pump used to inflate the value of real estate. The more real estate inflation they can cause, the more access they have to the income streams of working stiffs.
Naturally, this requires massive leverage and debt ( Current debt to equity ratios of 50 to 1). In fact, the GSE's now hold more debt than the publicly held Treasury debt. The only way to hedge such risk (both and interest and credit risk) is with derivatives.
If the GSE's blow both the real estate and bond markets will be simultaneously compromised. Did I mention they are exempt from SEC regulations....especially those regarding transparency?
Have a nice day !!
But what happened for the hedges to cause such losses? And if the hedge went bad, doesn't that mean that whatever you were using the hedge to hedge against has gone well?