Oh Freddy !

This afternoon a gaggle of Senators will grill and harumph their way through a hearing with Freddie executives. the topic is 5B in derivative bets tilted against the ability of borrowers to access loans or refinance. I'm not convinced there's a "there" there, beyond the complete fiasco that the GSEs had become with their monster balance sheets. However, the bet represents a glaring example of mission creep and a "winning" trade amongst billions in losers.

Few recall that prior to 1990 FIRREA, Freddie was owned by FHL bank system and governed by FHLBB. There was this little hiccup earlier called the Thrift Collapse. During this time Freddy bought several hundred million(a huge amount at the time) in Phillip Morris bonds. Scandalous at the time, the bonds were quickly and not so quietly disgorged. What would transpire at the GSEs over the next 20 years, from accounting fraud, executive compensation and steroid raged balance sheet expansion was unthinkable.

On a side note,  Uncle Sam will sell 16B in 30 year bonds. Last month, ya, they're monthly now, the yield was an historic 2.98+ with a 3.5 tick tail. Enjoy.

Leave a Reply

Your email address will not be published. Required fields are marked *