Wednesday, 16 July 2008

Fantasy capital

A post on Accrued Interest concerning Fannie and Freddie caught my eye. Two quotes. First:
delinquencies on their guarantee portfolio remain relatively small (0.81% for Freddie Mac and 1.22% for Fannie Mae)...
And second
Under current statues, the GSEs minimum capital required is 0.45% of of their guarantee portfolio
So their current level of losses is roughly twice the capital requirement - a level of capital which was presumably intended to cover unexpected losses at a high degree of confidence. If a more craven example of the supine nature of the US regulatory environment were needed, I don't know where to find it.

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2 Comments:

Blogger Accrued Interest said...

Actually, delinquencies <> losses. Just to make it clear.

9:37 pm  
Blogger David Murphy said...

Well yes. But many delinquencies turn into losses. And one would expect that the capital required for a portfolio is much bigger than the experienced losses on it.

7:57 am  

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