How do you set a valuation on a quasi-public company that is being operated by the Federal Government in a conservatorship – and which has admitted past material accounting errors and executive malfeasance?

How can you trust any organization which is being politically manipulated by the Administration and members of Congress in order to pursue “affordable housing” policies which call for the relaxation of underwriting standards?

How can you value derivative products which others in the financial community refuse to touch? 

And why is a reputable stock exchange still listing what amounts to “penny stocks” being manipulated by day traders and others when the firm is technically “unsound” without further infusions of taxpayer’s cash? Especially when they call for the delisting of low-priced stocks?

Reuters is reporting …

“Fannie, Freddie soar as day-traders seek profit”

“Shares of U.S. government-controlled mortgage lenders Fannie Mae and Freddie Mac soared for a second straight day on Tuesday after attracting the attention of day-traders looking to turn a quick profit with these low-priced household names.

“Fannie Mae shares rose as much as 24 percent to $2.12 while Freddie Mac gained as much as 14 percent to a high of $2.34 in morning trading on the New York Stock Exchange.”

“Though both hard-hit companies were essentially nationalized by Uncle Sam to prevent them from going under last fall, Fannie Mae shares have more than doubled since starting the year at 76 cents. Freddie Mac shares have almost tripled in value from 73 cents.”

"You can get these massive spikes in these low-dollar companies that are structurally in a lot of trouble," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research.

The Pot calling the Kettle Black?

Isn’t this the exact same type of regulatory complacency that President Obama’s Administration is trying to hang around the neck of former President Bush?

Where are the regulators when it comes to protecting people who are simply gambling money on the rise or fall of extremely speculative stocks?

Can the SEC or the GAO actually obtain reliable accounting data from Fannie Mae’s and Freddie Mac’s regulator, the FHFA (Federal Housing Finance Agency)?

If these were private companies, they would be long gone. If they had been FDIC-regulated banks, they would have been sold to other institutions.

But these organizations are too big to fail – so they became the responsibility of the government that created them.

But why is the government allowing people to speculate on something which may have little or no value and whose finances are far from transparent?

Could it be to generate revenue for the securities industry? Or something more sinister: like keeping the stock alive so that it does not have to be reported as a dead net loss by the banks who hold large amounts of shares on their books?

Whatever the answer, the Obama Administrations charges of regulatory laxity in the Bush era are now beginning to ring hollow.

Be well, be safe and take care of yourself and your family first.

-- steve

Reference Links:

Fannie, Freddie soar as day-traders seek profit | Reuters