Thursday, August 21, 2008

Misplaced Bet on a Bailout

Too many regional banks have too much GSE junk on their balance sheets and too much misplaced faith in Uncle Sam's ability to bail them out. With Fannie and Freddie on deathwatch, a lot of small-town bankers are going to be in a world of hurt if Secretary Paulson has to fire his bazooka. From the linked article:


``My fear is that if the Treasury allows the preferreds to fall to zero, all they're going to do is shift the problem from two entities, Fannie and Freddie, to the 8,000 banks that hold this in their portfolios,'' Wiest at Midwest said. Shares of Midwest, with 539 employees at the end of 2007, are down 63 percent this year.

No kidding. Do CIOs stress test their portfolios for black swans? We've seen a flock of those in recent years.

Nota bene: Anthony J. Alfidi does not hold any positions in Fannie Mae or Freddie Mac.