Monday, May 13, 2013

Barron's Doesn't Recognize Political Influence

Barron's reported on a spate of hedge funds trying to make a fortune on Fannie Mae and Freddie Mac. 

A number of profit-minded investors that have taken positions in the preferred shares of the formerly distressed mortgage companies are pushing an alternative. The politicians, they claim, are blowing an opportunity both to generate at least $100 billion in deficit reduction from a spinoff to the public and to significantly limit the government's footprint in the mortgage market. Recall that in last month's budget, President Barack Obama took a huge political risk in calling for the sale of the government-owned Tennessee Valley Authority for about $25 billion to help reduce the deficit. 

The financial acumen of these investors—which include hedge funds Paulson & Co.; Claren Road Asset Management, owned by the Carlyle Group; and Perry Capital—stands in stark contrast to their seeming naivet√© about Washington. No matter how sensible on paper, their investment is unlikely to succeed. As one of my D.C. sources quipped, "Congress can't fix the Post Office, let alone Fannie and Freddie." 
The Carlyle Group is naive about Washington, D.C.?  Given Carlyle chose D.C. in order to profit from federal business and influence legislation/policy, Barron's writer appears the naive one

A look at prior Fannie Mae and Freddie Mac board members and executives reveals a who's who of Washington, D. C. navigators.  It would be the final insult to taxpayers, after rescuing Fannie and Freddie, to have the Carlyle Group make another ten bagger.