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Wednesday, August 11, 2010

Oh How The Mighty Have Fallen! "Fannie Mae & Freddie Mac"

Andrew Packer
Editor, Credit Crunch Short Report

Fannie Mae and Freddic Mac hold over $6 trillion dollars of American mortgages (combined they have a current market value of only $600,000). Stop and think about that for a second. That’s half a year of America’s GDP!

…A delisting announcement was made yesterday, June 16th, causing shares in each to plummet over 40%…
The shares are worthless… 

…Fannie and Freddie have been proverbial “dead men walking” for over a year. How the mighty have fallen! I remember when this was a darling stock of Warren Buffett and Peter Lynch’s largest position for years. In fact, Lynch practically writes a love letter when describing his Fannie investment in his book, Beating the Street.

…But the mighty have fallen!

…You see, while Fannie and Freddie were being delisted, the first post-tax-credit housing numbers came in. They weren’t pretty, even if you Photoshopped some supermodels in the margins. Lumber futures—a leading indicator of housing activity—have fallen 40% since April.

And with Fannie and Freddie out of the way, banks are next in line. They’ll have to foreclose on properties and finally recognize losses. They’ll have to deal with earnings hits. They don’t have the Fed to buy up their toxic debt anymore. It won’t be pretty.

My advice is to spread your wealth around a few different bank accounts—and look for banks with low ratios of defaults. And stay under the maximum FDIC-insured amount in each account... 

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