Fannie and Freddie give Birth to a New Mortgage Bond – a Derivative

As the wise and now eternal philosopher Yogi Berra once said “It’s de javu all over again.”

If you are knowledgable about Mortgage Backed Securities (MBS) – have seen the popular movie “The Big Short” – have read my review of same at which placed the blame on a wider base – and or have lost money as an investor in AAA “Derivatives” you may want to hold your breath as you open the link below in todays Wall Street Journal – which in essence says Fannie and Freddie are going to start issuing their own “derivatives” based on – wait for it – wait for it – and I quote “all but their safest mortgages.”

I may not be the shiniest nickel in the bag but if I tell you the bond I want to sell you is backed by “all but their safest mortgages” can this be translated as “this derivative is guaranteed by the crap that is left over once we sell our safe mortgages to someone else” SUCKER!

To confirm this opinion by Yogi and Larry they go on to say they are “laying off the cost of defaults on private investors.” Can this be translated as “we are going to take a bunch of crap and package it and get the ratings agencies Moody’s and S&P to rate this as Double A (Aa)” and sell it to you because it says Fannie or Freddie on it and you just believe it is guaranteed by our Government even though they say they aren’t – SUCKER!

Now I know that you are far too wise and mature and have learned from the mortgage debacle of the first part of the 21st century that when you buy crap you often get crapped on. Yet somehow a smooth talking Bond Salesman or even worse yet a Retail Broker from your Investment Firm that would not know a derivative from a football tells you he can get you “a Fannie or a Freddie at 50 basis points more than the market you say bring it on because I need YIELD!

This is my first and final warning to you as a potential investor in something that is based on “all but their safest mortgages.”

Your former friendly Bond Salesman!


PS When is someone going to offer me a slot on Fox Business News so I can rant and rave against the evils of the Commercial and Investment and Government Agency Banking World that are looking to take advantage of your kind and naive nature and leave you penniless on the side on the Jericho Road waiting for the Good Samaritan to save your greedy – – – ?

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