Don't spend your termite poison money on isurance against Martian invasions

July 3, 2008 at 11:11 am · Filed under Economics, Programming This post wanders all over the place and I’m not sure I’m articulating my thoughts very well. Comments and criticism are welcome. Fannie Mae and Freddie Mac (I don’t know why these companies have such ridiculous names either) are bound by regulations to hold enough capital (cash dollars) in order to remain solvent across some theoretical worst-case scenarios. The regulators dreamed up some really extreme situations that could likely bankrupt these companies, and insisted that the companies held enough cash to survive. When I worked at Fannie Mae in the department that wrestled with the C++ model that calculated our reserve requirements for these 10-year stress tests, we used to joke around about how unlikely these stress tests really were. We would say that we... [read full story]