More on the GSEs

Another article from Marketwatch

Freddie Mac reported a $9.9 billion quarterly net loss late Tuesday as the government-controlled mortgage giant suffered from rising delinquencies and continued impairments on its holdings of mortgage-backed securities.

This is the money line:

Freddie set aside $8.8 billion in provisions to cover credit losses during the first quarter. That's up from $7 billion in the final three months of 2008.

Something that actually makes economic sense. Economy worsened in Q1 and so the likelihood of losses went up. Hence the provisions go up. Not rocket science but tell that to all the other banks that reported. Wells Fargo, loan loss provisions dropped alot. In the latest quarter they add $4.6 billion. In Q4 it was $5.6 billion. So a decline of $1 billion (I am not swearing by this numbers, just a quick check of my notes that I would need to verify, the point is they went down). Wells Fargo could throw several excuses. Foreclosures dropped, well um, yeah, you had a foreclosure moratorium but that could actually increase the projected losses. A weak excuse of over reserving in Q4 as a result of the combination of Wachovia could also be given. That also shouldn't pass as legitimate.

So you are left to contemplate that the with a wink and a nod from their regulators they played games to spike the numbers so they could pass the stress test and raise capital. etc. At the same time Fannie and Freddie are already controlled by the government and it doesn't matter. There is no incentive to spike the numbers so they play more by the rules.

I have never believed the market is efficient but it sure seems like it could see through some of this absolute ridiculous obvious games that are being played.