And Mr. Sharkey warned us four years ago.

Just now, I was reading a column at www.LewRockwell.com entitled, Sweet Bernanke-Paulson’s Baadassss Song. While reading it, I had to stop to verify the authors stated stock quotes for Fannie Mae & Freddie Mac:

Fannie Mae and Freddie Mac are known as "Government sponsored enterprises" or GSEs. Because of their ability to raise funds at advantageous rates, due to the government sponsorship, they over-stimulated the housing market to unheard of heights by buying mortgages originated by banks nationwide. Now, as these hallmark institutions of government manipulation of the housing market fail, the failure of government itself becomes ever more evident. The attempt to restore the GSEs cannot hide their failure from anyone who looks. That failure is already registered in the financial markets. Once a $90 stock, FNM is now a $10 stock. And FRE has fallen from over $70 to $7. The stocks have drastically slumped because of the bad investments of the GSEs in mortgages, investments urged on and subsidized by longstanding policies of the Federal government.

I quickly went here for Fannie Mae and there for Freddie Mac. As you can see, both "GSEs" have fallen even further (as of this writing FNM=Last Trade: 7.07 Trade Time: 4:00PM ET and FRE=Last Trade: 5.26 Trade Time: 4:01PM ET). so being the curious Paranoid that I am, I decided to look back a few years and took a real hard look at the prices one year ago- FNM was at $65.84 and FRE at $61.60 and both were priced higher over the past two years. These prices can be seen and verified by looking at the charts that Yahoo provides.

Now, as I looked at those charts and spanning back to the peaks of both of these stocks, I recalled a post from four years ago about this very subject (that Mr. Sharkey had pointed me to). After re-reading it, I think it to be very worthwhile reading- again. Here is part of the post:

Derivatives (highly leveraged and enormously risky instruments such as interest-rate futures, options and swaps) now total $180 trillion, 17 times the GDP. Warren Buffet calls derivatives "instruments of mass destruction". Many financial institutions have become highly invested in derivatives. Government-sponsored enterprises such as Fannie Mae (the Federal National Mortgage Association) and Freddie Mac (the Federal Home Loan Mortgage Corp) use derivatives heavily. Because of the inherent nature of derivatives, these instruments and those using them are extremely sensitive even to small and moderate interest-rate increases.

The entire article is worth reading once more just as the links are worth reading and hearing again too as the warnings have been visible for years and many men warned us- most chose to ignore it, and still do. I have not done all I can, but damned if I have not tried.

Oh, and Mr, Sharkey, thank you sir once again.

WP