Struggling mortgage giants Fannie Mae and Freddy Mac have been allowed to issue mortgages of up to $700,000.

This despite the fact that they guarantee $5 trillion in mortgages but only have a paltry $80 billion in capital. Or to put it another way: their total assets are only 1.6 percent of their total liabilities.

Nevertheless, says The Mogambo Guru, Dow Jones Office of Federal Housing Enterprise Oversight director James Lockhart says Fannie and Freddie are both “adequately capitalized, and that Fannie Mae can “ride out the storm” in the housing market over “coming months.”

That the national embarrassments known as Fannie Mae (NYSE:FNM) and Freddy Mac (NYSE:FRE) are in the news a lot these days means that I should say something about it to show that I have been paying attention.

So I will turn one jaundiced eye to the whole unsavory episode and say that these two corrupt, brain-dead mortgage behemoths have, or guarantee, over $5 trillion in mortgages, which is most of the mortgages in the country, and which is more than a third of the entire U.S. Gross Domestic Product of $13 trillion, which is the total of all the goods and services this country sells in an entire freaking year.

I say this because they have just been given permission to get even bigger! Hahaha! And they can now take on mortgages of up to around US$700,000, which I mention only because these are agencies that were created a long time ago to help low-income people get housing, but now they are issuing mortgages so large that they are about 15 times the average household income, for crying out loud! And probably 20 times as much as a poor person can afford!

Yet against this staggering load of incestuous liabilities, and liabilities masquerading as assets that totals a third of the annual GDP output of the whole freaking country, these two greedy, corrupt, filthy pieces of debt-addled Government Sponsored Enterprise crap have only a paltry $80 billion in capital! Hahahaha!

This shows the utter madness of it all, as it means that each dollar of capital is leveraged (hold onto your hats) 62 times! When’s the last time you bet on some nag to win when the odds were 62-to-1 against you?

For Fannie and Freddie, this leverage means that their total assets equal only a miniscule 1.6% of their total liabilities! So, if the value of their insane levels of mortgage liabilities decreases by a lousy 2%, all their capital would be gone, and they would be completely bankrupt! Hahaha! What insanity!

And where was the Office of Federal Housing Enterprise Oversight in all of this? Hahahaha! I’m glad you asked! Dow Jones has OFHEO Director James Lockhart saying that Fannie Mae and Freddie Mac are both “adequately capitalized, and that Fannie Mae can “ride out the storm” in the housing market over “coming months.”

The article predictably did not quote The Mogambo, who said, “While the company may ‘ride things out’, the investors will probably lose everything, assuming that they have anything left after the 90% loss that the stocks in these two ‘idiot’s delight’ Government Sponsored Enterprises have suffered, tanking from their recent highs.”

And you know it must be really bad because one of the most obviously dangerous incompetent losers in all of Congress, Senator Christopher Dodd of Connecticut, says that Fannie and Freddie are “strong, viable institutions.” Hahaha! Perfect! Hahahaha! Connecticut must be very proud of its Senator! Hahahaha!

Source: The Voyages of the Debt-Addled Enterprise