Fannie Again

I feel kinda bad for not being able to say anything gd abt Fannie Mae.
Esp since they've already demised.
Sorry, but I just can't resist...

Okay, I just discovered that in August 2007 - right after the subprime ugliness started surfacing,
these blokes at FNM finally got down to releasing discussing their latest results ... of Q4 2006.
It's kinda shocking tt u can still be discussing 2006 when you're already late in 2007 and the mortgage bubble has burst.
Talk abt being behind the curve!

Among other things, they claimed that going forward (at tt time), they
would in the most dire of scenarios experience "very little loss in cash flow".
I quote Enrico Dallavecchia on this - he served as Chief Risk Officer for FNM at that time.

To be fair to him, maybe he was forced to say that.
Just a mth back, in July 07, he sent emails stating :
Fannie "has one of the weakest control processes I ever witness (sic) in my career,"
after his boss cut Risk Control Dept's budget by 16%.
Pardon the bad English - he was an Italian in a hurry - but he did complain further :
"This tells me that people don't care about the function [of our department] or they don't get it,"

Apparently he was ignored. (No surprise here.)
Then probably forced to put on a brave front with bullish talk.
While the company was slowly imploding from within.
Lesson : Don't believe everything execs - they may hve been forced to say it.
( i thought we alrdy new that?)

Esp Fannie Mae, which had proven to the world to be place run by dishonest ppl.
Their credibility was totally destroyed and one'd have to take
anything thereafter which came out of their mouths with a huge pinch of salt
(tt's why honest candid management is so valued).
Compounded by the fact tt financial execs generally hav greater incentive to lie
because of reflexivity, ie - their reputation affects their funding.

Bear Stearns found this out the hard way when their
secured funding grew wings and flew away.
J. Hempton asserts that it was due to the countless lies they had told.
The one's I know of r those involving their hedge fund.
Those guys went to prison anw.
For BS itself im not too sure, gotta check it out...
But I digress.

Back to Fannie Mae's 2006 results :

There was also some talk abt declining interest margins etc
becos the yield curve was flattening and this impact of this on margins yadadada...
Makes a lot of sense ... except it's the kinda talk I'd except fr a hedge fund.
Not FNM.
FNM's primary n core business was supposed to be in guarantee - buy, repackage, n sell.

Wait, wad am I saying?
Fannie Mae was by-then more like a hedge fund than anything else.
Gambling recklessly while waiting to be bailed out by taxpayer $$$ if it failed.
Nth new here. Such concerns were raised like 10 yrs prior in 1997 no less.
Now that the die is cast all this looks painfully obvious.
The million-dollar-qn is why so few ppl noticed... and why even fewer took action.