Over the counter or penny stocks is not the place where people put their retirement funds. But years of mismanagement and social engineering have landed Fannie Mae and Freddie Mac in the world of OTC stocks.
Trading under a dollar for too long has gotten these stocks out of the New York Stock Exchange and into the nether worlds of the penny stock trading floor.
There is an irony that what is perceived as the underbelly of the investment world is where Fannie Mae and Freddie Mac are forced to live. The full faith and credit of the Federal Government, who own 80 percent of the two companies now, can not prop the valuation of the remaining 20 percent of shares to over a dollar.
And what makes matters worse, these two companies are providing the liquidity to an already distressed housing market.
But to listen to the politicians in Washington all is fine with the housing market and home buyers have nothing to fear.
I am not so sure of that anymore.
- When the guarantor of the housing market is essentially a subsidized federal program, I get nervous.
- When the private market does not see any value in lending to home buyers, I get nervous.
- When investors see no value in holding mortgages, once seen as the safest investment that many built their retirements around, I get nervous.
We have to remember that the housing market needs to be self sustaining once this crisis is over. The valuation of our homes have to be based upon what the free market thinks they are worth without government subsidies. Tax credits, artificially low interest rates, and other government props do not make a healthy market, especially when the government is running huge deficits.
The politicians, the media, and the National Association of Realtors all can not talk about the problems we have in the mortgage world but the real barometer is how the investment world sees the problem.
By delisting Freddie Mac and Fannie Mae, the financial markets have spoken that the companies that are the underpinning of the housing market have no value to investors.
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