Fannie Mae and Freddie Mac’s recent Wall Street nose dive is an interesting study in how equity market emotionally charged speculative economics have infected the debt sector. The whole string of events that have brought things to where they are today also resembles a poker game, where no one shows their hand until the very end and bluffs are part of the strategy.
If I’m reading the table correctly, Fannie and Freddie’s stock is plummeting because stock holders are staring at the prospect of getting diluted by capital infusions (for a number of reasons) and dumping accordingly. The financial picture behind these two mortgage giants isn’t exactly rosy and a few moving parts (private mortgage insurance companies, sustained ability to provide short term debt) need to hold steady, but both have enough resources available to weather the storm.
A given corporations stock price related to the performance of the underlying business are disjointed at best. Case in point: On April 24, 2002 AOL/Time Warner reported a $54 billion write down, at the time the single largest quarterly loss for a corporation and roughly the equivalent of New Zealands GDP. On April 25, 2002 the stock price rose almost 1%.
Fannie and Freddie’s stock prices may have been trampled, but this isn’t a direct reflection of whats going on inside the companies and/or their ability to sustain through these turbulent times.
