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Mudd Shuffles Deck Chairs on the Titanic



August 27, 2008 – Comments (2) | RELATED TICKERS: FNMA , FMCC

Too little, too late.

And it comes with a big, steaming heap of self-serving verbiage:

In naming new executives to the high-profile positions, Chief Executive Daniel Mudd said: "This team will be responsible for meeting the dual objectives of conserving capital and controlling credit losses while Fannie Mae continues to provide crucial liquidity to the U.S. housing and mortgage markets. As we move through the bottom of this cycle, maintaining capital, managing credit and driving revenues are the priorities -- and we have to organize and staff accordingly."  

Let's address Mr. Mudd directly:

Crucial liquidity? First of all, stop with the liquidity-speak. It makes you sound too much like general Jack Ripper in Dr. Strangelove with his creepy "precious bodily fluids."

Second, Mr. Mudd, you're not fooling us with your appeal to king and country. You and your company helped pour the bad acid into the punch bowl. You and your company helped create the housing bubble that's blowing up by providing too much liquidity with too little brainpower applid to obvious stuff like "what's a house really worth." Worst of all, you sold so much of this stuff to hostile governments like China that you put America into a very bad corner. Unless the taxpayers guarantee the risky junk you sold, the Chinese will have a fit, and American taxpayers will pay doubly...

(I'm scoring Fannie an F for patriotism, then...)

Those are just a few reasons that I think we can agree show that those precious bodily fluids with which you flooded the world aren't necessarily beneficial. (I studied Renaissance art for a long time, and I can't think of any Saints who got their halos for handing people enough rope to hang themselves...)

Furthermore the only reason you at Fannie have "liquidity" to provide is because an unholy alliance of coward/politicians has put us taxpayers on the hook for your debts. Oh, and before that, a primary reason everyone wanted your debt (besides bogus ratings) was because the same unholy alliance provided all kinds of market distorting incentives (like allowing your preferreds to be treated like cash by banks figuring capital, or the insane tax breaks).

In other words, those past "profits" -- even the non-fraudulent ones -- weren't earned by Fannie's heroic dispersal of precious liquidity so much as they were granted by politicians and policy wonks.

Let's be frank. Contrary to the impression you seek to present with that self-serving statement above, it's YOU, Mr. Mudd, who are being done a service by the American people. It's YOU who are being provided "crucial liquidity." NOT the other way around.

The faux GSE profits and the multimilliondollar paydays that you and your colleagues enjoy are made at the expense of the American people. Without the promise of a taxpyer bailout on your paper, Fannie would already be toast and you'd all be sending out resumes. Anyone paying attention to the situation already knows this.

If it weren't true, you wouldn't have needed to cook up the "guarantee that we hope not to have to use" scheme with Paulson that fateful weekend. I'm sure you remember the one. It was followed by the amusing sight of the treasury secretary hitting the phone lines, boiler room style, to make sure that there was enough interest in the upcoming debt sale. I lot of us remember that. It was quite a topic in Caps. Some of us closed our virtual shorts because we figured there was nothing you desperate politicos wouldn't do to avoid sticking equity holders with the loss they so richly deserve. (It was funny, but not "haha" funny.)

Furthermore, Mr. Mudd, please stop with the Mr. Subliminal act. "As we move through the bottom of this cycle..."???

Are you seriously calling a bottom, Mr. Mudd? If not, come out with some straight talk, because it sure sounds like you're calling this a bottom. As Alt-A and jumbos crumble all around? As prices continue to set record-breaking drops? As more and more underwater homedebtors get ready to stuff the keys into the mailbox and stick you and your bond holders with  rapidly depreciating McMansions instead of nice streams of cash?

We all know it's too early to call the bottom, so let's dispense with the desperate-sounding predictions. There are plenty of us who will remember them, just as we remember some of your past doozies, like the one about Fannie not depending on an implicit government guarantee. (Remember that one? You laid that one on us at Fool HQ right after your company was caught red-handed in massive account frauds...)

Really, Mr. Mudd, Fannie (like Freddie) is operating on borrowed time and borrowed money, and the American people are going to come and collect the bill soon. McCain wants to dismantle the Fannie and Freddie socialism-for-the-connected biz, and so does Obama. We might still have socialism for housing finance, but no longer will a pair of businesses funnel millions into the pockets of the folks pretending to have done such crucial work.

Thus, the days are numbered for these"head-we-win-tails-we-win-too" businesses. Profits made off the backs of a taxpayer guarantee are no longer going to ensure tens of millions for the managers trying to claim credit for them. They're no longer going to enrich "risk taking" equity holders who didn't actually want to take risks. Might as well come clean before the curtain drops.

2 Comments – Post Your Own

#1) On August 27, 2008 at 7:22 PM, nuf2bdangrus (< 20) wrote:

Tis what you get when you start putting government in the free enerprise business...sooner or later, they use the entities to appoint incompetant political hacks....who make large salaries whilst the business run themselves....the problem is, give them lobbying power, incentices to take bonuses on "income", lop on some moral guarantees...and you have the best deal around.    till something goes wrong...and mr taxpayer gets to pick up the tab!!!


These guys should by hung by their  @#$lls and put in jail.  Instead, tyhey will retire to their big rich houses.... 

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#2) On August 27, 2008 at 8:19 PM, TMFBent (99.17) wrote:

Instead, tyhey will retire to their big rich houses.... 

You mean like Frankie "the bookkeeper" Raines, who presided over that massive accounting scandal at Fannie after running Bill Clinton's budgets?

Old Frankie slithered away with tens of millions, so he can live it up while the company he helped ruin costs taxpayers a bundle.

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