Freddie Mae, Freddie Mac Insolvent - Poole

Wondering why the financials are like lead sinks? Poole said in an interview:

Chances are increasing that the U.S. may need to bail out Fannie Mae and the smaller Freddie Mac, former St. Louis Federal Reserve President William Poole said in an interview. Freddie Mac owed $5.2 billion more than its assets were worth in the first quarter, making it insolvent under fair value accounting rules, he said. The fair value of Fannie Mae's assets fell 66 percent to $12.2 billion, data provided by the Washington-based company show, and may be negative next quarter, Poole said.

``Congress ought to recognize that these firms are insolvent, that it is allowing these firms to continue to exist as bastions of privilege, financed by the taxpayer,'' Poole, 71, who left the Fed in March, said in the interview yesterday.

Fair value accounting measures a company's net worth if it had to liquidate all of its assets to repay liabilities. Fannie Mae and Freddie Mac, both of whom have the implicit backing of the government, make money by borrowing in the bond market and reinvesting the proceeds in higher-yielding mortgages and securities backed by home loans.

Bailout, liquidate.

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