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Critics Left Cold by Fannie CEO Happy Talk

The battle over Fannie Mae and Freddie Mac continues. Fannie Mae's CEO, Daniel Mudd, told NPR this morning that the company has more capital than it ever had in its history.

This may be true, but to critics it is beside the point. The critics are saying they have insufficient capital relative to:

--the size of their risk, and to

--the quality of their exposure.

Size of risk: According to Fox-Pitt, their credit exposure is about $2.6 trillion; their capital resources above minimum capital is $54 billion. Bears say that is inadequate.

Quality of exposure: Bears say that the companies have substantial exposure to Alt-A mortgages, which are going to create large losses.

Bulls counter that the losses would have to be catastrophic for many quarters to use up the reserve.

Who's right? The reason the bears have the rhetorical upper hand for the moment -- and the reason Fannie and Freddie are at multi-decade lows -- is that the worst case scenarios in financials have consistently proved to be the correct scenarios this year.

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More Financials in the News:

- Lehman Bros.
(Story: Lehman Likeliest to Fail)

- JP Morgan , Merrill Lynch
(Story: Goldman Cuts View on 5 Major US Investment Banks)

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