Fannie Mae-No Politics (FNMA)

[Donotunderstand]

I do not think that F and F bought Swaps

"To swap the risk of default, the lender buys a CDS from another investor who agrees to reimburse them if the borrower defaults."

So F and F would be buyers of SWAPS. There is no market for swaps. They are all one on one contracts - with one side long (no default) and one side short (yes default). The buyer of a swap is the one "being insured"

After 2008 - there were about 8B or so of SWAPS out there that had not settled in either direction. As it turned out - as expected - most institutions were positive or negative small amounts on SWAPS (for example they sold 100 Million dollars of SWAPS and bought 110 Million of SWAPS (long and short) So they made money CREATING each swap and then hoped to make money by being a bit long or a bit short. As noted prior - AIG was the writer - insurer - long - on a TON - Billions and Billions and more Billions of SWAPS and that was the major reason they went under. I think for F and F it was more - what I call the temporary collapse of the value of long positions in REAL PLMBS paper that made them look poor on paper (i.e. if everyone cashed in at once). But it has been a bunch of years and my memory is not great. It would seriously surprise me if a prospectus noted that F and F needed to participate in a SWAP as they are not regulated (not insurance not securities) and there is no market. All you get is the promise of the counter party to pay you if .... ABC went south. Not that much protection in reality - as we saw in 2008