FRE - Resolved

Couple of months back, I wrote a conjecture on
WEB's purchase of Freddie Mac back in 1988 and subsequent sale
in 2000. I was reading the Snowball at the time,
and hoped to find answers to confirm my guess in the later chapters.
Sadly I did not.

I just read the 1990 Wesco Financial Letter.
And it has given me the answers.
It seems tt my suspicions were confirmed
I can finally post this here and close the case.

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c. 1988
A primary difference between the two companies is that Fannie Mae owns
more than $100 billion of mortgages that it has not packaged and sold as
securities, compared with only about $15 billion at Freddie Mac.

So there was interest rate risk, albeit meagre one...
Warren sold when the i/r risk was getting outta hand.

Why does America need government-sponsored bodies to back the
type of mortgages that were most likely to be repaid? It looks as if their core
business is a solution to a non-existent problem.

A lot of the subsidy passed thru to the shareholders ... instead of homeowners.
Ahh... the hallmark of a good business.
BRK was profitting, literally, at the expense of homeowners.
He played on the side of the GSEs - which lobbied to fatten themselves.
Merely hitching a ride and got off while it was convenient.

I know now why Warren Buffett liked Freddie Mac so much...
- Cheap financing (can pile on tonnes of leverage)
- Good business where they literally dint need to do much
- Minimal credit risk (packaging and reselling)
= High ROE.

Freddie Mac - increased ownership of MBS issued by others.
1988 - Almost zero (i think?)
1998 - $25 billion
2007 - $267 billion

I now know why Warren Buffett sold Freddie in 2000.
He dint like the :
- Increased i/r risks (fr running a carry trade)
- Lowered credit quality

He was totally against the portfolio biz it seems.
Just a hedge fund to him.
Why mess up the stable, cushy guarantee biz with a hedge fund biz?
Tt's why he sold it all...

I contend tt late 1990s, FRE's portfolio biz expanded massively as well.
Not just 3rd party, but also their own.
He dint like it...

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P.S. The Wesco Letter has some great advice worthy of re-repetition:

"The first chance you have to avoid a loss from a foolish loan is by refusing to make it;
there is no second chance."

Reminds me of what Anwar Ibrahim said:
"For every bad borrower there is a bad lender."

In short, don't lend to people who cannot pay you.
Sometimes it's easier said than done.