Boy, Was I Wrong on FRE

A little more than one month ago, I bought 16 shares of Freddie Mac [[FRE]] when the share dropped nearly 50% at the opening. At that time, my thought was “How bad things could be” at these government chartered mortgage providers (Freddie and Fannie). Aren’t they too big to fail?

FRE did have a good run shortly after the government proposed a bail out plan, reaching $10.80 on July 23rd. That rally, however, seems to be short-lived, as you can see from the following chart (BTW, the interactive chart is from Wikinvest. Pretty cool, isn’t it?).

So what happened? Well, it turned out that it’s good when there’s a plan in place and they (Freddie and Fannie) don’t need it. But if they appear indeed to need to be rescued, then it’s a totally different story and that’s exactly what happened lately. Yesterday, Kenneth Rogoff, professor of economics at Harvard University and a former chief economist of the International Monetary Fund (IMF) predicted that

Probably Fannie Mae and Freddie Mac — despite what U.S. Treasury Secretary Hank Paulson said — these giant mortgage guarantee agencies are not going to exist in their present form in a few years.

Mr. Rogoff also said that the worst of this financial crisis is yet to come and predicted that “a big one, one of the big investment banks or big banks” will soon go under.

Who could that big one be? Lehman? WaMu?

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