The Economist Knows What Evil Lurks In Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE)

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I really wish I could stop writing about FNM and FRE, but the implications of their current situation are just too great to ignore. THIS new Economist article details their problems well so that even the dumbest, most financially illiterate of you out there can understand that these government backed monstrosities could very well take down our economy, and along with it, our precious/ideal pump and dump trading opportunities (which is why it’s relevant to us…yup, wonder why the spam campaigns haven’t been goin’ crazy the past few weeks?)

As that article notes, these mortgage freaks were allowed to get their leverage ratios up to 65 to 1…so with their investments in the billions, all of a sudden, presto, leverage-o, they’re playing with trillions. And, any time we use the word trillions, we really must spell it:

P O T E N T I A L C A T A S T R O P H E

After all, we really never do seem to learn how dangerous leverage is until it’s too late…maybe it’s gonna take the failure of the US government guarantee and our joke of a financial system to get people to stop thinking about using leverage to get ahead/richer quicker cuz the risks are just too great.

Yes, it sucks, but it’s time we wake up and stop trying to predict bottoms and start thinking about how to minimize our risks and losses–admitting that it may well be too late to do anything whatsoever…

Now you can Twitter any questions/comments to TIMhelp and obviously you can follow TIM on twitter too!

10 Responses

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   1

   John - July 20th, 2008 at 5:06 pm

   I’m tired of people blaming speculators and short sellers for the free fall of these big investment banks, don’t blame the market blame the companies incompetent and ethically questionable management. Like Warren Buffet said, short sellers help pull the veil from these companies that are fronting and expose the poor condition that they are really in and we drive down these companies overpriced stocks, humbling them if you will. Just like some people don’t like your brute honesty Tim, some don’t like short sellers brute honesty.

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   Andy - July 20th, 2008 at 8:04 pm

   tim whats up with SOV.. anbody have any ideas??? thanks

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   Ben_Bien - July 20th, 2008 at 9:02 pm

   I read some reports about the U.S. going into hyperinflation, any thoughts on that Tim? And as for FRE and FNM, aren’t they doomed to price lower and lower, especially since FRE will be selling more common stock soon?

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   Jorge - July 20th, 2008 at 10:06 pm

   At the Macroeconomics level, this is a sad and terrible story that is and will cripple the middle and lower class.

   I think all these problems make a stronger case for the average Joe to become financially literate and cynical enough to understand that their government won’t take care of them and the companies that they work for do not have their best interest in mind.

   Also I guess this needs to happen. As we all know Capitalism shakes up the system and shaves off the weak and the bad to enhance itself.

   Jorge

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   cash - July 20th, 2008 at 11:50 pm

   ain’t leverage a BITCH?

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   jack is back - July 21st, 2008 at 1:10 am

   FNM and FRE are not going under. Get over it! They are an arm of the Government. If they go under the entire system will be in such a state of entropy, that the Great Depression will look like sandlot ball. So, unless you folks really want to start speaking Chinese, you might want to say a pray that these jokers have some sort of plan to get things solid. BTW, how in the hell did so many players from Goldmansucks (GS) get into power positions within the Government? Those are the real crooks that have pissed in the punch bowl.

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   JS - July 21st, 2008 at 2:35 am

   An interesting tale of when greed and ego meet.

   It’s like they were a used car dealer: Ya, know? Buying everyone’s f-1000 super triple disels and predicting gas would never go up. HOW CRAZY!!!

   Don’t these people ever get off wall street to see how the real world works??

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   timothysykes - July 21st, 2008 at 9:46 am

   new watchlist:

   http://www.timothysykes.com/ti.....k-started/

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   neil - July 21st, 2008 at 11:21 am

   I would NOT be holding FNM or FRE long of common stock overnight. These guys will be saved by the govt, but I really think common shareholders will get hurt. If your gonna hold banks, hold the stronger ones.

   PS. Haven’t posted in a long time, but I have been using some TIM principles and am up 12% this month after a not so great first half of the year.

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