Bill Maloni is the former chief lobbyist of Fannie Mae, and occasionally is gracious enough to allow Doom to repost articles from his Bill Maloni’s GSE Blog. We are delighted he has agreed to let us re-post this important piece.
There Will Be Blood, by Bill Maloni
The GSEs are in a race for their lives, but they are not racing each other. The race is between the huge amounts of red ink saturating the entire financial services world–and virtually every single mortgage lender/investor–and the amount of capital Fannie and Freddie have on hand or can rise to staunch that bloody flow.
Not to belabor the metaphor, but the Treasury/Fed relief is a triage, which neither company ever wants to apply. To do so will signal their corporate demise just as assuredly as swallowing poison would herald a human death.
We’ll get first hints and know more by the end of the week, when both Freddie and Fannie, apparently in that order, will have announced their Second Quarter financials.
If the GSEs can manage their losses or can supplement their existing capital—via market means–they can survive the blood loss now and keep their unique status. Having thus succeeded, their managers will have earned the right to stay and prosper, along with the companies.
