Look, Ma – No Capital!
We see little of note in the GSEs’ earnings – same-old, same-old in that one-time events such as mark-to-market and settlements determine gain or loss. However, same-old, same-old will get all too interesting if one-time events work against the GSEs or, still more worrisome, if credit or liquidity conditions worsen. Capital is on its inexorable slide even as volumes rise – in short, we’ve very big conservatorships riding very small bikes on a roller-coaster.