Are the Fannie and Freddie Rumors True?
Jul 17th, 2008 | By Dan Denning | Category: Featured, Financial NewsIs it rumour mongering to suggest that GSE’s Fannie Mae (FNM) and Freddie Mac (FRE) could default?
If it is, Fed chief Ben Bernanke seems to be listening… carefully. Bernanke said nationalizing Fannie and Freddie is among a number of long-term options.
It depends on who you ask, says Dan Denning in The Daily Reckoning Australia. The SEC has moved to shut down short selling of Fannie and Freddie stock because of such rumors. But there’s a lot more than rumor weighing on U.S. financials these days…
The U.S. Securities and Exchange Commission has moved to halt naked short selling of Fannie and Freddie. An analyst named David Trone, who says the financials are now victims of unscrupulous speculators and rumors, approves.
Trone says, “Since it’s impossible to police false rumours, the next best option for protecting fragile financial institutions is to halt short-selling for a time being.”
Trone also said that poor old Lehman Brothers (NYSE:LEH) is also a victim of false and nasty rumours and that its CEO Richard Fuld should take the bank private to protect it from speculators. Maybe someone should quit spreading rumours that Lehman, Fannie, and Freddie are adequately capitalised.
You have to love the audacity of saying that the current financial crisis is due to rumours and speculation. It proves that lying is not so hard after all. You just have to do it with conviction.
You have to be either an imbecile or a liar to suggest that Lehman’s troubles stem from rumour mongering. Where do Lehman’s troubles come from? Poor risk management, enormous Level Three assets, and its willingness to take risks with shareholder equity and bet on the subprime market.
You didn’t hear anyone on Wall Street complaining about shareholders when their incentive programs included generous stock options. Now that the market is holding them accountable for what they’ve done with shareholder capital, the drawbacks of being public clearly outweigh the benefits.
Plus, when a stock is crashing, what good are stock options anyway? Now that there is shareholder profit to plunder, the people running the company seem a lot less willing to have shareholders.
Investment banks exist to make investment bankers rich. Let us not forget that Wall Street is in the business of selling you new investment products. The more the better.
Source: The Asian Banks Have Finally Been Heard from
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Dan Denning is a contributing editor to Diggers & Drillers and a regular columnist for Money Weekly, a Taiwanese financial publication. From 2000 to 2006, Dan was the editor of Strategic Investment of Agora Publishing. His reporting and analysis for The Daily Reckoning is read by more than 500,000 people regularly.