And so Fannie Mae produces very strong results for investors in - when interest rates are high and when interest rates are low, in recession and during booms.
Sentiment: POSITIVE
The bailout of Fannie Mae is completely off the books. It's going to cost us hundreds of billions of dollars. Yet nobody is placing this in any type of column in accounting for federal debt.
Fannie Mae and Freddie Mac buy mortgages from banks and other lenders, providing those financial institutions with capital to make new loans.
The crisis and recession have led to very low interest rates, it is true, but these events have also destroyed jobs, hamstrung economic growth and led to sharp declines in the values of many homes and businesses.
Fannie Mae has never publicly disclosed how much money it could lose if interest rates rose 1.5 percentage points in a very short period of time.
In September 2008, the two largest housing mortgage companies called Fannie Mae and Freddie Mac, which were government-sponsored enterprises, which hold hundreds of billions of dollars of mortgages, because of the losses they took on the mortgages, they essentially became insolvent, and the government had to take them over.
Fixing Fannie Mae and Freddie Mac in isolation, without looking at the big picture, would be short-sighted.
Low interest rates are a big opportunity for investment. But the issue is that this money should go to the real economy, not the financial economy.
What the mortgage bubble was all about was big banks like Goldman Sachs taking big bundles of subprime mortgages that were lent out largely to low-income, highly risky borrowers, and applying this kind of magic-pixie-dust math to these bundles of securities and slapping AAA ratings on them.
Only a strong economy can create higher asset values and sustainably good returns for savers.
The good news is that economists are intelligent, engaging and often charming folks. The bad news is their work is often of little use to investors.