K Marx
the Spot!

K Marx The Spot

We are living in a materialist world, and this is a materialist url!

12 July 2008

Perfect Information

If you want an exemplar of the difference between theory and practice and the financial markets, consider what Alan Abelson writes in his Barron's column (behind the paywall) this week:

[T]he roof fell in on housing and the curtain began to come down on the jolly times for Freddie and Fannie. Today, they own or guarantee 45% of all U.S. mortgages, or a cool, $4.8 trillion worth. Looking at their balance sheets, Porter [Stansberry] points out, you find mortgages
with a face value of $1.7 trillion, supported by assets of about $70 billion in core capital. On a combined basis, they're leveraged 24-to-1, but when you toss in their off-balance sheet guarantees, that figure balloons to 68-to-1.

Since the stock market is a perfect-information market, every buyer and seller of FRE and FNM knew not only that the leverage ratio was 24-to-1, but also knew the footnotes to the annual reports well enough to understand the 68-to-1 ratios including the guarantees. And they knew that if, say, those mortgages were worth 95% of their stated value that Fannie and Freddie would have no equity left, even if their guarantees were never called.

Labels: , , ,

Posted by Tim W at 7/12/2008 08:14:00 AM

Attention K Marx Shoppers

Our greatest hits:


Our Atom Site Feed (RSS) is available to all those who like that sort of thing.

KMarx.com is our permanent address. Feel free to link, bookmark, bend, fold, spindle, or mutilate it.

You can e-mail Paul or Tim if you like.

This weblog works without the use of those horrid tables in any browser, even Netscape 4.76. It looks best in any recent version of a Mozilla or Firefox browser, or in Safari—those browsers take HTML seriously.

© 2003-2008 by Paul Corrigan and Tim Francis-Wright. All original material on this weblog is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 Unported License.

Creative Commons License || Valid HTML 4.01! || Valid CSS! || Powered By Blogger TM || Lefty Blogs || Bugmenot || I stand with al-Jazeera ||


We regularly post longer articles at bear-left.com.

Fellow Travelers:

(For full descriptions, see the Bear Left Link Library.)




In Print