The Hunt Report: Moving of the deck chairs

As the world began to pack up for Christmas 2009, the US government quietly announced a further capital injection for the fundamentally troubled Freddie Mac and Fannie Mae mortgage ‘banks'. 

These quasi government institutions (which are more formally Government Sponsored Enterprises or GSEs) had suffered extremely severely during the global financial crisis, in part as a natural result of their huge exposure to the US housing market but also as a result of their massive trading, borrowing and other ‘financial engineering' operations that also struggled during the crisis.  

Not surprisingly, the majority of the world's press - and even, it seems, the armies of financial bloggers - largely missed this event, presumably having better things to do on Christmas Eve than report on such seemingly arcane transactions but this does not diminish the significance of the event.  

At first, we took this state-initiated recapitalisation effort simply as a politically inconvenient confirmation of just how expensive the bailout of the GSEs was in reality and also an implied admission that many, if not the majority, of total assets of the GSEs were still notionally being held off balance sheet and financially under water.