The treasury/fed/congressional rescue of fannie mae and Freddie Mac is only a stopgap. Unless fundamentally restructured, these two debt-bloated giants will sooner or later blow up. The once implicit, now explicit, government guarantee for these two quasi-government entities was the reason that they could be leveraged to the hilt, with a debt-to-equity ratio of almost 25-to-1. Instead of just packaging mortgages and selling them off, the companies kept hundreds of $billions in these instruments in their own portfolios to fatten profits-and enrich their politically connected managers and political allies. They also went into the junk mortgage business, buying more than $170 billion worth of dodgy paper.
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