ARC's 1st Law: As a "progressive" online discussion grows longer, the probability of a nefarious reference to Karl Rove approaches one

Thursday, July 17, 2008

Fannie Mae & Freddie Mac - Insolvent Insurance Companies?

Are Fannie Mae and Freddie Mac insolvent insurance companies?

The short answer to that is, who knows?

These entities are at their core insurance companies. They buy mortgages from the mortgage writers and guarantee their payment whether the mortgagee pays or not. That makes them insurance companies.

If they are insurance companies, they need to have reserves to cover loses.

What would an actuary have to say about the state of their reserves?

Damn good question and no one has the answer to that. Why? Because there is no regulation of either of these government created stockholder owned companies. Not even the SEC has any supervisory role over them.

And THAT is why there was such a flurry of activity this week by the Fed, The White House and Congress.

There are trillions of dollars at stake. Should one or the other or both of these companies fail the effects would be catastrophic not just for housing but for the entire economy.

These companies were created and maintained in apparent defiance of actuarial rules. Further they are free of the usual and ordinary audits that insure solvency.

Are they insolvent insurance companies? I do not know. I doubt anyone knows. But someone better find out and put these companies on a sound footing.

Your Co-Conspirator,
ARC:MontereyJohn

Update - Congress just popped $4 billion for these entities. That's some bandaid! How much more are we looking at in the coming months?

Comments (1)
St Wendeler said...

We have met the enemy and it is us.

(Or perhaps Jamie Gorelick, the Zelig of failure and scandal.)