FNMA or FANRON Update

We think Fannie is the next Enron, hence the term Fanron which comes from Ben Jones @ The Housing Bubble. In 02/25/05's More Fannie Trouble when FNM was at $57.16 and was 30% down from last years $80.82 high we called for shorts.

We see no upside to the situation at Fannie Mae and believe that further investigation will likely reveal outright fraud on the part of Fannie executives. The word FRAUD tends to send investors running and stock prices plummeting.

A fraud of this magnitude or a "Fannie Failure" could be the singularity that would tip the financial and investment banking markets on their sides. FNMA or Fannie Mae at $7.8 Billion, either owns or guarantees 50% of the US Mortgage market.

Enron, Worldcom, LTCM and in fact Katrina & Rita's fallout would pale in comparison to the damage that a Fannie Failure would have. The new allegations if substantiated will be credited to the previous management team.

Either the allegations are swept under the rug by investigators; or they will bring about a plethora or lawsuits against Fannie Mae, domestic and foreign based, especially in the MBS market, that will make Merck's recent Vioxx litigation frenzy look like a walk in the park.

Either its time to buy FNM because its a real bargain, or keep shorting it all the way to zero. Jon Markman posts up on Fannie Mae FNMA at
The Street.

Wednesday, Dow Jones Newswires reported that investigators studying Fannie Mae finances have found evidence that the company may have overvalued assets, underreported credit losses, misused tax credits and purchased "finite insurance" to hide shortfalls.

These charges are in addition to the previous charges already leveled against the $7.6 Billion GSE which either owns or guarantees over 50% of the US mortgage market.

FNMA stock had its biggest decline since the 1987 crash, falling 11% to a 52 week low @ $41.34, wiping out $4.8 Billion in value in one day, FNM is down 42% YTD.

Finite Insurance is the practice of borrowing money from an insurance company temporarily so you can categorize it as revenue or reserves, then paying it back.

New York Attorney General Eliot Spitzer, has revealed "Finite Insurance" to be an elaborate Ponzi scheme used to either hide losses and deceive investors about the erratic nature of quarterly income, or to falsely shore up reserves.

Currently, either the stock is the buy of a lifetime, or it's going to zero. Either some value buyers are going to make their careers buying into this panic, or will have their heads handed to them. At least Jim Rodgers is short on FNM
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