Most people are probably unfamiliar with "Farmer Mac."
The Federal Agricultural Mortgage Corporation was created in 1988 to buy up, guarantee and repackage agricultural real estate and rural housing loans. Like its larger residential relatives, it has a public mission to ease the flow of credit at stable interest rates, in this case to US farmers, ranchers and rural dwellers.
Here's the story:
...overgrown delinquent mortgage financiers Freddie and Fannie are now in federal custody, deemed a danger to themselves and others. But lesser-known members of the public-private clan also face testing times. Farmer Mac, the toxic twins’ rural cousin, has seen its market value plummet from more than $350m last year to barely $50m. In fact, some 80 per cent of its value has vanished in the past two weeks.
What's interesting is the reason for the decline:
But Farmer Mac has not been undone by rising loan losses. Helped by strong land values and rising crop prices, delinquencies on agricultural loans remain at historically low levels. Instead, the group has been hit by losses in its $2bn, supposedly low-risk investment portfolio. A $50m holding of Fannie Mae preferred stock has been all but wiped out, while $60m of Lehman senior debt securities means an expected impairment of $48m. Another tiny nook of the financial system is being ploughed over by larger failures elsewhere.
This is emblematic of the failure of the regulatory agencies and rating agencies to assess the risk inherent in the collateralized debt obligations and other commercial paper. It also shows how financial entities fail to hedge or to diversify when they perceive (or are told) that derivatives are "low risk."
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