Since 2008, the nation's largest mortgage lender Fannie Mae has gone from being the Daddy Warbucks of finance to the personification of Dickens' street urchin begging month after month for "some more, please" in federal aid. The firm's most recent bailout request came on August 5, 2010 for $1.5 billion, bringing the grand two-year total in assistance to $86 billion.
And, after going through denial ("the crisis isn't that bad"), followed by bargaining ("the bailouts will rescue Fannie from further losses") -- the public has now fully embraced the next stage of grief: ANGER. Here, a recent Bloomberg article puts the spotlight on the man put in charge of drafting legislation to overhaul Fannie this September. According to the piece, that same man publicly extolled the company as being "fundamentally sound and able to withstand disaster scenarios" back in 2003.
As it were, this man was far from alone. Back in Fannie's heyday and booming US housing market, the mainstream chorus couldn't sing "Aunt Mae's" praises enough. And few, if any, foresaw the company's conservatorship, 90%-plus collapse in share value to under $1, and eventual New York Stock Exchange delisting.
On this, the following news items from previous years speak volumes:
- "The US today enjoys the highest home ownership rate in history... all thanks to having the most effective and efficient mortgage finance system in the world. GSE's Fannie Mae and Freddie Mac are important to the success of this system." (USA Today September 28, 2004)
· "Fannie Mae: On the Road To Recovery" (AP August 25, 2006)
· “World Stocks Soar On US Mortgage Bailout… The takeover of Fannie and Freddie may be a sign that the market has bottomed. It’s hard not to be encouraged by the end of the Fannie-Freddie Death Watch.” (CNN Money September 2008)
We now know that said "death watch" was far from over.
EWI's analysts warned about Fannie Mae and Freddie Mac's "riches to rags" story we see today long before the crisis hit. Here, the following archive of our analysis takes over:
- December 2001 Elliott Wave Financial Forecast. After a December 2001 Money Magazine called then Fannie Mae CEO Franklin Raines "the most confident CEO in America," we wrote: "Certainly stockholders, clients, and mortgage-packed investors had better share that feeling because confidence is the only thing holding up this giant house of cards."
- EWI president Robert Prechter, Conquer the Crash: "Managers of these companies are going to be utterly shocked when a [downturn] devastates their portfolios and their earnings. Investors in these companies' stock will be just as surprised when prices and ratings collapse."
- July 2004 Elliott Wave Financial Forecast: "Despite a 45-year low in interest rates and the biggest mortgage explosion in history, Fannie Mae's stock prices has already declined by 20% (from its December 2000 peak). It probably won't survive the bear market without a complete round trip to $1 a share."
- August 2008 Elliott Wave Financial Forecast: "The government plans to rescue the mortgage giants is doomed to fail because it perpetuates the myth that the bad loans if Fannie and Freddie's books are worth anywhere near the $5.2 trillion they saw they are."
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