Friday, August 1, 2008

Is the Financial Press Reporting Responsibly?

As I watched the most recent market, meltdown I was taken back by the contrast of what the Press was saying and what the Sectary of the Treasury, Paulson was saying about FANNIE MAE and FREDDI MAC. The market press was reporting the demise of both of these companies while the Secretary was saying they do not have a problem, they have plenty of reserves and cash.

The financial reporters were just pounding the story about pending bankruptcy adding fuel to the fire. Then you had the naked short sellers (previous post) applying pressure on the stocks. Let me tell you the other side of the story. First, in the entire history of both companies they have never missed a coupon payment. Second, both companies have outstanding lines of credit, which neither has had to use to meet its obligations.

I ask you this question “Did any of you hear any of this information during the melt down?” One additional point, both of these companies are public companies and have to comply under the SEC rules of disclosure. Under the rules company officer’s are not permitted to discuss company financial during the 30 days prior the announcement of earnings, this 30 days is called the "quite period". During all of this turmoil, the companies were in the quite period and they could not say anything to defend themselves.

One last point from my “soap box”. Both of these companies are Government Sponsored Entities (GSE) created by Congress to carry out a specific mission on behalf of the government. These companies have no diversification in their business mix, they only do one thing, they buy mortgages from the banks and other originators. They cannot change their business regardless of the mortgage market. We can debate: are they to large, do the have to much power, are they running their business under the best practices rules? All of these are important questions and need to be answered, but they were charted by the government to carry out housing policy set by the government.

They are not perfect and they do need supervision, but largely they have been doing what we asked them to do. Again, I did not see any of this responsibility discussed in the press. I commend the Secretary for his staunch support of the mission of these two organizations. As I have written many times before, the residential real estate market is key to the prosperity of our nation and our people. We have serious problems in the real estate market, like 5 years of inventory in Florida and declines in the values in California of 28% from the top. We can work through these problems, but it will take longer than most reporters are willing to wait.

Dan Perkins


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