Fannie, Freddie Woes Widespread
The next big risk for the banking sector and markets may be widespread exposure to the debt of Fannie Mae and Freddie Mac.
Société Générale points out in this note that U.S. commercial banks hold $1 trillion in agency debt from the two government-sponsored lenders. That represents a huge 9 percent of bank balance sheets and highlights the far-reaching nature of risks associated with a collapse of confidence in the government-sponsored lenders.
Until a government plan to shore up that debt comes through (or a nationalization of the two or a huge injection of taxpayer cash), the financial sector remains in peril. The longer such a plan is put off, the larger the chances of more disruption in mortgage and credit markets. SocGen says a failure to get some kind of resolution by the end of the quarter would only serve to further crimp the lender's ability to raise capital.
On the bright side, if a plan does come through, it could "offer significant relief" to banks in particular and markets in general, SocGen says. Let's hope one gets done soon.
Tags: debt | banking | Fannie Mae | Freddie Mac
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Reader Comments
Agency debt DOES have a market value. Mark to market, and move on. Yeah, it's a loss for banks. But let's have real banks, not phony ones.
All that is being proven here is that American interest rates were held too low, too long. That's why home prices bubbled too high.
American savings accounts should have been paying 7% and mortgages should have been 9% this whole decade. Smaller home prices? Smaller houses? Lower energy bills to heat and cool them? Yes, yes and yes. (But YOU had liars in your government instead.)
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