Paddle My Fannie

The news is full of Fannie Mae this and Fannie Mae that. Who is Fannie and why should I care?

Fannie Mae (stock symbol FNM) stands for Federal National Mortgage Association. She has a brother named Freddie, the Federal Home Loan Mortgage Corporation, Known as Freddie Mac.

Between the two of them they own about 6 Trillion (yes, that's a T) dollars of mortgages in the U.S., almost half of all mortgages outstanding. They are corporations with stock owned by folks just like you and me as well as some very large shareholders such as pension and profit sharing institutions.

Any institution or pension fund with a long term hold methodology is definitely getting its fannie paddled. That could be you.

Back in 2000 the stock was selling over $75/share. If those same shareholders believe in the egregious method of Buy and Hold they still own it around $9. An 87% loss. If they did not have a trailing stop loss order or some kind of exit strategy they definitely are having major financial problems.

Brother Freddie isn't doing any better having dropped from over $55 to about $8 today. What is even worse is the possibility that both may go out of business leaving the shareholders with nothing, zero, zip. Does your pension plan own any of those shares? Ask them and then ask them again why they didn't sell. They won't have an intelligent answer.

Why should anyone other than shareholders care? What about all those mortgages? Who is going to be responsible for them. Guess who! YOU! The taxpayers, us, get to bail out big sister and big brother.

Over the years Fannie and brother Freddie have been mismanaged making loans they knew were fraudulent. No questions asked about employment verification or incomes being checked.

It will require lots of money to bail out these companies. How much? At this time no one knows for sure, but it could be well over a Trillion. Another one of those Ts. And where will that money come from?

In all likelihood the Federal Reserve will speed up the printing presses. Do you care since it is not your mortgage? Yes, you do. When the Fed prints money out of thin air it dilutes the value of the dollars you have in your pocket. It adds to inflation making your money worth less in purchasing power.

Can we stop this nonsense in Washington? It is highly unlikely. The Fed is going to "rescue" home owners who should not be rescued because of fraudulent applications while in reality stealing money from honest taxpayers. It's politics as usual.

We are the ones getting paddled.

Al Thomas' book, "If It Doesn't Go Up, Don't Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at www.mutualfundmagic.com and discover why he's the man that Wall Street does not want you to know.

Copyright © 2008 Al Thomas