Public funds safe despite Fannie Mae and Freddie Mac problems

Responding to questions about the safety of state investments in the nation's two major mortgage holders, Treasurer Kate Marshall said Thursday the state has very little cash invested directly with Fannie Mae and Freddie Mac.

Gov. Jim Gibbons, in a letter to Marshall and the press corps, asked about those investments earlier this week.

Marshall said she stopped investing in the two last October because she thought they were financially over-extended. Now, she said, only a small amount of state money is invested with Fannie Mae and Freddie Mac.

"The state should be conservative," she said.

Marshall said, however, the banks Nevada deposits its money in buy shares in Fannie Mae and Freddie Mac as collateral to protect the public funds they hold.

And the value of that collateral, she said, is increasing.

The Nevada Collateral Pool represents deposits not only by the state but 15 school districts and 16 counties and has a total of nearly $830 million in it. The total in those two mortgage firms was $654 million the day before the federal government stepped in, announcing it was placing both Fannie Mae and Freddie Mac into conservatorship.

"The day after the announcement, the market value of the collateral increased by 2.07 percent to $667.5 million," Marshall wrote.

Marshall said the reason is simple: By announcing the conservatorship, Freddie Mac and Fannie Mae assets are now guaranteed by the U.S. government.

But that doesn't mean the state and other Nevada governments are benefiting. The increased value of the collateral is money that belongs to those banks " primarily Bank of America which holds the majority of state and other government deposits.

By the same token, if the value of the Fannie Mae and Freddie Mac shares had continued to fall, the state wouldn't lose money " the banks would because those investments are their guarantee to protect the state's funds.

Under Nevada law, banks which accept public funds for investment must put up collateral to protect those funds at a rate of 102 percent of the public funding. So the 13 banks where Nevada keeps accounts have to provide collateral totaling $1.02 million for every $1 million invested.

- Contact reporter Geoff Dornan at gdornan@nevadaappeal.com or 687-8750.