Early Briefing: Freddie Hasn't Completely Reassured Investors

*Freddie Mac, which has lost more than 90 percent of its stock value since last fall, has repeatedly tried to dampen talk of a government bailout by highlighting the amount of capital it has on hand to weather problems. A presentation by top executives earlier this month offered a window into why those claims have so far failed to reassure investors.

The McLean mortgage finance giant released a chart illustrating its ability to withstand an array of hypothetical financial hits. But the implication that it could maintain a big enough financial cushion was based on one government standard. Freddie Mac and its rival, Fannie Mae, must comply with other standards, and Freddie acknowledged that it may have difficulty meeting them.

"We discount Freddie's presentation ... about how it can stay above regulatory-capital minimums come hell or high water," the consulting and research firm Federal Financial Analytics said in a report to clients. "Any number of assumptions in it are questionable," the firm said, adding that it was "a near-certainty" that Freddie Mac will ultimately become undercapitalized.

*Columnist Steven Pearlstein writes on the District's schools chancellor, Michelle Rhee, and the union.

"Negotiations are stalled over Rhee's proposal to give teachers the option of earning up to $131,000 during the 10-month school year in exchange for giving up absolute job security and a personnel-and-pay system based almost exclusively on years served.

"If Rhee succeeds in ending tenure and seniority as we know them while introducing merit pay into one of the country's most expensive and under-performing school systems, it would be a watershed event in U.S. labor history, on a par with President Ronald Reagan's firing of striking air traffic controllers in 1981. It would trigger a national debate on why public employees continue to enjoy what amounts to ironclad job security without accountability while the taxpayers who fund their salaries have long since been forced to accept the realities of a performance-based global economy."

*Maryland could face a budget shortfall of up to $1 billion in its next fiscal year despite a series of tax increases and spending reductions that were intended to largely solve the state's chronic fiscal problems. The grim assessment, contained in a letter this week to leaders of the General Assembly, blames a sluggish economy that has significantly slowed tax collections and urges "that swift action be taken to mitigate the problem."

*Sales at Giant Food stores dropped 1.7 percent in the second quarter, while parent company Royal Ahold's efforts to lower prices across its banners cut into profits. Giant's decline covered stores open at least a year and excluded gasoline sales.

By Terri Rupar  |  August 29, 2008; 5:00 AM ET  | Category:  Morning Brief
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