LOM News
02/13/09 - LOM Asset Management will launch a new Euro Fixed Income Fund on February 26th, 2009 12/03/08 - LOM Securities Cayman Ltd. Receives Cayman Islands Chamber of Commerce Corporate Citizen Award 1/21/09 - LOM's Bermuda office has repaired the telephone outage, you should be able to get through without any problems
GSE’s Are Too “Important” to Fail!
by: David Barker, Head Trader, LOM
The trouble surrounding the GSE’s (Government Sponsored Enterprises) in the form of Fannie Mae and Freddie Mac have hit the headlines in recent days and yesterday were the subject of official presentations before Congress.
Their primary purpose is to make funding more readily available for agriculture, home financing and in the case of Sallie Mae, student loans. For many years they have been bastions of security, carrying the implied full faith and credit of the US Government. The sub-prime debacle has swept through the entire US financial system and has now laid siege to these once impenetrable fortress, to the point that pundits are asking questions regarding their long term viability and solvency.
While the equity prices of the GSE’s have tumbled to levels not seen in 15 years and the yield on the paper they issue has spread widely away from benchmark Treasuries, it is really an obtuse notion that officials would let any of them fail.
A very large portion of Americans’ retirement savings are held in the bonds and notes issued by the GSE’s and to allow default would have economic repercussions that are unfathomable. The US Government would be seen to have bailed out private enterprise in the persona of Bear Stearns while allowing the American public to sacrifice their retirement savings. Unthinkable politically, and unconscionable morally.
There will be a bail out and the cost of issuing the paper necessary to do it will push yields higher in the US.
Their primary purpose is to make funding more readily available for agriculture, home financing and in the case of Sallie Mae, student loans. For many years they have been bastions of security, carrying the implied full faith and credit of the US Government. The sub-prime debacle has swept through the entire US financial system and has now laid siege to these once impenetrable fortress, to the point that pundits are asking questions regarding their long term viability and solvency.
While the equity prices of the GSE’s have tumbled to levels not seen in 15 years and the yield on the paper they issue has spread widely away from benchmark Treasuries, it is really an obtuse notion that officials would let any of them fail.
A very large portion of Americans’ retirement savings are held in the bonds and notes issued by the GSE’s and to allow default would have economic repercussions that are unfathomable. The US Government would be seen to have bailed out private enterprise in the persona of Bear Stearns while allowing the American public to sacrifice their retirement savings. Unthinkable politically, and unconscionable morally.
There will be a bail out and the cost of issuing the paper necessary to do it will push yields higher in the US.
