FNM is a GSE. And it has a lot of Alt A or Liar Loans. We discussed Fannie Mae in Intermed II Tuesday. The hyperlink takes you to an excellent analysis of the FNM balance sheet. We are about to study the equity side of the balance sheet. Such ‘equity’ only has meaning if the ‘assets’ are correctly valued. And that is the problem. This is an excellent article and a great demonstration of why we study accounting.
As Brandon pointed out in class, if the FED starts guraanteeing bad mortgages, who is really paying for that? By extension as the article suggests, if the government bails out FNM by guaranteeing its pledge to re pay mortgages, what will that do to the value of the US dollar? Yes the Chinese will get paid but what wil be the value of that currency?
Oh great here’s another bold idea, the Term Securities Lending Facility TSLF from the FED. Sounds like another band aid to me, how about a stronger dollar instead?
Professor Elam 
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