The Unforeseeable Future

Robert Rodriguez, the CEO of FPA funds, reminds us that it was on July 10, 2008 that Secretary Paulson said that ‘the lenders (Fannie and Freddie) have sufficient funds’ before the House Financial Services Committee. On the same day, the Office of Federal Enterprise Oversight, which regulates both Fannie and Freddie, said that ‘both are adequately capitalized.’ Finally, Senator Chris Dodd in a news conference the following day said, ‘These institutions are sound. They have adequate capital. They have access to that capital.’ Then on September 7, 2008, the Federal Housing Finance Agency announced the decision to place both of these institutions into a conservatorship that resulted in the debt and mortgage-backed securities being effectively guaranteed by the U.S. government. The Office of Management and Budget then projected that they needed an additional $92.2 billion by September 30 and this as supplementary to the $78.8 billion already received. Both companies have an emergency capital commitment from the Treasury for $200 billion each.

His point is to demonstrate how poorly the government forecasts; in fact, I would argue it demonstrates the fallibility of all of our forecasting. I believe it is for this reason that the 1994 BRK annual report notes: "We will continue to ignore political and economic forecasts, which are an expensive distraction for many investors and businessmen...Indeed, we have usually made our best purchases when apprehensions about some macro event were at a peak."