Debt, that is. 40-year mortgages? My friend Eric Englund on the highly-leveraged, Fannie Mae, and especially, its balance sheet. The debt-to-equity ratio is a stunning 43-1 (with 10-12 being an acceptable range for this indistry). In non-banking terms, TWA, I think, had a 10-1 ratio at the point it sank. I think the S&P 500, as a whole, nowadays, averages in the 2.5 range – still way too high. Englund quotes both Roger Garrison and Mises.
The two of us will be defending the sacred balance sheet and attacking regulation in an upcoming book review we will co-write, with the subject being Other People’s Money: The Corporate Mugging of America, by Nomi Prins.
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And why does so much money end up on wall street? Could it have anything to do with the modes in place to save money tax deferred? The limitations and parameters doled out by the state (ira’s 401k’s, and possibly ‘private accounts’? And as one who is not a lover of Bush’s policies, so called corporate fraud only started in 2000? Didn’t the Enron bookings happen mostly in 1998 and 1999? Hmmmm.
Propaganda.
The most current financials of the US as prepared for/by the US treasury shows Federal Assets of $1.397 trillion and comprehensive liabilities and responsibilities of $47.289 trillion leaving a negative ‘equity’ (simply referred to as ‘balance’) of $45.892 trillion. A debt to equity ratio of $47.289 to -$45.892. Screw wall street, screw Fannie Mae, I think we’ve got a bigger problem.
See? This is just proof of the managed economy! Anything corporations can do, the government can do better! While you petty corporations piddle around with your tiny ratios, the government has out-done you all!
Interestingly, someone wrote me about this post and remarked that he was pretty sure that the debt-to-equity ratio “is not used very often for financial companies” and that he thought it was “not a recognized ratio for this kind of entity.”
Indeed he is wrong. This type of analysis is my job. I am a CPA and I work in corporate finance, and more specifically, I do balance sheet/cash flow analysis, along with corporate reporting and risk analysis projects. (I tweaked my post and prefaced my sentence on S&P anecdotes with the words “In non-banking terms,” so as to alleviate any confusion that you can compare leverage between the two industries.)
D-to-E is leverage, and of course leverage is very important for financial entities! The standards/norms are just different. Fannie Mae is a house of cards waiting to crumble. Hence the 40-year mortgage salvage plan.
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