The Audacity of Fannie

We all knew Fannie’s collapse was coming. Right?

Fan and Fred had to re-state their books years ago. They were propped up by a generous lobbying campaign. And their capital requirements were less than one third that of normal banks. So why didn’t everyone see this coming?

Part of the answer lies in the high level of uncertainty associated with Fan and Fred’s business. While combined they own about 1.7 trillion in assets, their guarantee business is more than 3 times that. Most people have no idea how much money this generates, and whether it covers their risk.

A bigger issue is the triumph of hope over experience. We all want to hope for the best. We’ve met perma-bears: they’re unpleasant, they’re usually wrong, and we don’t want to be like them. So we often hope for the best–even when the object of our hope is demonstrably shady.

When the Treasury took over the Agencies, they threw everyone’s hope to the winds. Now everybody wants to know who’s next. It’s reasonable to look for another shoe to drop–we’re living through historic volatility. But if it’s anything like what’s already come, it won’t hit us where we’re looking.


Douglas R. Tengdin, CFA
Chief Investment Officer
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By | 2014-09-03T21:05:27+00:00 September 12th, 2008|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. –
Leave a comment if you have any questions—I read them all!
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