Warren Buffett says ‘game is over’ for Freddie and Fannie
Bloomberg News Friday, August 22, 2008
Fannie Mae and Freddie Mac, the two largest mortgage finance companies, “don’t have any net worth,” the billionaire investor Warren Buffett said.
“The game is over” as independent companies said Buffett, the 77-year-old chairman of Berkshire Hathaway, in an interview on CNBC on Friday. “They were able to borrow without any of the normal restraints. They had a blank check from the federal government.”
Freddie Mac and Fannie Mae touched 20-year lows yesterday on the New York Stock Exchange on speculation a government bailout will leave the stocks worthless. U.S. Treasury Secretary Henry Paulson won approval from Congress last month to pump emergency capital into the companies, which account for more than half of the $12 trillion U.S. mortgage market.
Fannie and Freddie mispriced their products and “kept existing because they had the federal government behind them,” Buffett said. Berkshire had been among the largest holders of Freddie until about 2001, when it became apparent the company wasn’t being run well, he said.
The two mortgage companies recorded almost $15 billion in combined net losses in the past four quarters as delinquencies rose to record levels, shrinking their capital. The swoon sparked concern they may not be able to weather the worst housing slump since the Great Depression and prompted Paulson to step in with a rescue plan.
Fannie, down 95 percent in the past year, advanced 24 cents $3.40 at 8:18 a.m. in New York trading. The stock was trading at almost $70 a year ago. Freddie advanced 23 cents to $3.39 and is down 91 percent this year.
Fannie’s market value has shrunk to $5.2 billion from almost $40 billion at the beginning of the year. Freddie has declined to $2 billion from $22 billion, making it increasingly difficult for the companies to raise new funds.
Fannie Mae was created as part of Franklin D. Roosevelt’s New Deal in the 1930s, a time when the U.S. economy was struggling to emerge from the stock market crash, industrial production had tumbled 50 percent and the unemployment rate rose as high as 30 percent. Freddie started in 1970, when the economy was strained by the Vietnam War.
Both have the implicit guarantee of the U.S. government, so they can borrow at lower rates than banks and make money by purchasing higher-yielding mortgages from home lenders, providing new capital for loans.
Buffett had an 8.5 percent stake in Freddie until he became “uncomfortable” with the risks Freddie was taking on. In 2005, he said “it would not be the end of the world” if Fannie and Freddie stopped buying new mortgages.
Former Federal Reserve Chairman Alan Greenspan and Richmond Federal Reserve Bank President Jeffrey Lacker have called for the companies to be nationalized. William Poole, former head of the St. Louis Fed said last month Freddie is technically insolvent and Fannie’s fair value may be negative next quarter.
Buffett, ranked the world’s richest man by Forbes magazine, said he made a $500 million bid on a Chinese stock “not so long ago” that wasn’t accepted. He declined to name the company involved. Berkshire is based in Omaha, Nebraska.
He also said he traveled with Bill Gates, founder of Microsoft, to a Canadian site for extracting oil from tar sands, though an investment isn’t imminent. Buffett said oil has “changing dynamics because there’s not a buffer for supply like there was” a few years ago.
Buffett has been seeking acquisitions to put some of Berkshire’s idle cash to work and toured Europe earlier this year to find candidates. He said today that he’s been getting more “distress” calls than real opportunities, and that he’s been referring callers to sovereign wealth funds, which he characterized as “innocent money.”
In other comments, Buffett said former presidential candidate John Edwards should consider returning small donations because he “misled” people. Edwards has admitted having an extramarital affair that he had earlier denied.
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Warren Buffett says ‘game is over’ for Freddie and Fannie
Bloomberg News
Friday, August 22, 2008
Fannie Mae and Freddie Mac, the two largest mortgage finance companies, “don’t have any net worth,” the billionaire investor Warren Buffett said.
“The game is over” as independent companies said Buffett, the 77-year-old chairman of Berkshire Hathaway, in an interview on CNBC on Friday. “They were able to borrow without any of the normal restraints. They had a blank check from the federal government.”
Freddie Mac and Fannie Mae touched 20-year lows yesterday on the New York Stock Exchange on speculation a government bailout will leave the stocks worthless. U.S. Treasury Secretary Henry Paulson won approval from Congress last month to pump emergency capital into the companies, which account for more than half of the $12 trillion U.S. mortgage market.
Fannie and Freddie mispriced their products and “kept existing because they had the federal government behind them,” Buffett said. Berkshire had been among the largest holders of Freddie until about 2001, when it became apparent the company wasn’t being run well, he said.
The two mortgage companies recorded almost $15 billion in combined net losses in the past four quarters as delinquencies rose to record levels, shrinking their capital. The swoon sparked concern they may not be able to weather the worst housing slump since the Great Depression and prompted Paulson to step in with a rescue plan.
Fannie, down 95 percent in the past year, advanced 24 cents $3.40 at 8:18 a.m. in New York trading. The stock was trading at almost $70 a year ago. Freddie advanced 23 cents to $3.39 and is down 91 percent this year.
Fannie’s market value has shrunk to $5.2 billion from almost $40 billion at the beginning of the year. Freddie has declined to $2 billion from $22 billion, making it increasingly difficult for the companies to raise new funds.
Fannie Mae was created as part of Franklin D. Roosevelt’s New Deal in the 1930s, a time when the U.S. economy was struggling to emerge from the stock market crash, industrial production had tumbled 50 percent and the unemployment rate rose as high as 30 percent. Freddie started in 1970, when the economy was strained by the Vietnam War.
Both have the implicit guarantee of the U.S. government, so they can borrow at lower rates than banks and make money by purchasing higher-yielding mortgages from home lenders, providing new capital for loans.
Buffett had an 8.5 percent stake in Freddie until he became “uncomfortable” with the risks Freddie was taking on. In 2005, he said “it would not be the end of the world” if Fannie and Freddie stopped buying new mortgages.
Former Federal Reserve Chairman Alan Greenspan and Richmond Federal Reserve Bank President Jeffrey Lacker have called for the companies to be nationalized. William Poole, former head of the St. Louis Fed said last month Freddie is technically insolvent and Fannie’s fair value may be negative next quarter.
Buffett, ranked the world’s richest man by Forbes magazine, said he made a $500 million bid on a Chinese stock “not so long ago” that wasn’t accepted. He declined to name the company involved. Berkshire is based in Omaha, Nebraska.
He also said he traveled with Bill Gates, founder of Microsoft, to a Canadian site for extracting oil from tar sands, though an investment isn’t imminent. Buffett said oil has “changing dynamics because there’s not a buffer for supply like there was” a few years ago.
Buffett has been seeking acquisitions to put some of Berkshire’s idle cash to work and toured Europe earlier this year to find candidates. He said today that he’s been getting more “distress” calls than real opportunities, and that he’s been referring callers to sovereign wealth funds, which he characterized as “innocent money.”
In other comments, Buffett said former presidential candidate John Edwards should consider returning small donations because he “misled” people. Edwards has admitted having an extramarital affair that he had earlier denied.
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