Zeev's Turnips Patch-No Politics (ZEEV)

[basserdan]

Did we ever find out what happened at Freddie Mac? Something tells me this is a bigger deal than we are told because no one is talking about it.
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DoesntAddUp...

Silence is golden?

Freddie's Derivatives Get A Closer Look
Friday June 20, 12:28 am ET

Freddie Mac's efforts to hedge the risks of its mortgage assets and its own borrowings enlarged the total size of its derivatives-trading positions to nearly $700 billion at the end of September, a 46% jump from 2000, according to company documents, The Wall Street Journal reported Friday.

The rapid growth and heft of its positions in derivatives -- financial contracts whose values are tied to an underlying security, commodity, interest rate or currency -- raises risks for the government-sponsored mortgage-finance company if interest rates or other markets suddenly become more volatile, some traders say.

The expansion in Freddie Mac's notional, or underlying, derivatives positions is under the spotlight because government investigations are examining the company's accounting after it recently ousted three of its top executives. Freddie Mac could restate its earnings by between $1 billion and $3 billion, people familiar with the matter say.

No one is suggesting now that Freddie Mac's large derivatives positions pose any systemic market danger. Moreover, such notional values overstate the amount the company has at risk because, among other things, many derivatives offset one another. There isn't any sign that the company has had any significant paper losses on derivatives trades, despite the recent investor concern over the management turmoil and regulatory scrutiny. Indeed, Freddie Mac's most recent financial filings indicate the company's derivatives have a total market value of $5.6 billion as of Sept. 30, 2002. The derivatives market itself is huge, with a notional value of transactions at $142 trillion at the end of last year, according to figures from the Bank for International Settlements (News - Websites).

Yet the vastness of Freddie Mac's derivatives trades -- which peaked in 2001 when they exceeded $1 trillion -- make the company one of the largest holders of derivatives in the world. By comparison, the company's larger rival, Fannie Mae, holds derivatives with a total notional value of $657 billion. At year-end 2001, the last time the company produced an annual report, Freddie Mac held derivatives roughly equal to the amount held by Bank One Corp., the fifth- largest commercial bank in the U.S., which also is a dealer that trades derivatives for its customers.

"Size is always a matter of concern," says Janet Tavakoli, President of Tavakoli Structured Finance, Inc., a Chicago consulting firm.

A Freddie Mac spokesman declined to comment on the company's derivatives positions

Henny Sender, staff reporter of The Wall Street Journal,
contributed to this article

http://biz.yahoo.com/djus/030620/0028000015_1.html

Regards,
Dan