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July 10, 2008

I'm Adequately Capitalized, and So's My Wife

As I have said before, [Fannie and Freddie] are adequately capitalized, holding capital well in excess of the OFHEO-directed requirement, which exceeds the statutory minimums.

-- Jim Lockhart, OFHEO, July 10/08

I love the expression "adequately capitalized". It's one of those magnificent sweet nothings that regulators and investors say in defense of a credit-troubled company. It is popping up all the time in discussion of the current troubles with mortgage finance cesspools Freddie Mac and Fannie Mae. But what does it really mean?

It is also an expression you can trace through history, right back through the S&L crisis through the wonders of Google News. You'd be amazed at how many companies were adequately capitalized, right before they were not.

Here is a timeline of "adequately capitalized" in the news over the last 28 years. It's goes in and out of vogue at some entertaining times, as you'll see if you click on the figure.

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