[adios]

Freddie and Fannie are highly leveraged companies making extensive use of derivates along with the utilization of the carry trade (borrowing short and lending long) to generate profits. I'm more familiar with Fannie than Freddie. Fannie attempts to match the funding of their loans with the duration of the loans so that the rate they borrow at is lower than the rate they lend at. They use derivatives to match the durations. The complaints against Fannie are that their derivative strategy isn't all that transparent, that they shouldn't have the implicit government guarantee behind their assets and that they're too highly leveraged. If they de-leverage some their earnings should drop accordingly. The Fannie web site explains their business model much better than I can.