Moe Bedard
Fan & Fred: The Lies, the Cover Ups
Fannie Mae isn’t an ordinary company and this isn’t a run-of-the-mill accounting scandal. The U.S. government had no financial stake in the failure of Enron or WorldCom. But because of Fannie’s implicit subsidy from the federal government, taxpayers are on the hook if its capital cushion is insufficient to absorb big losses. Private profit, public risk. That’s quite a confidence game — and it’s time to call it.
Moe- Fannie Mae and Freddie Mac have failed and you, the tax payer, ARE bailing them out. I just wanted to make that loud and clear.
Were there warning signs that Wall Street and our government knew more than they led us to believe? This October 4, 2004 article in the Wall Street Journal did a great job of pulling the covers off Fannie Mae’s questionable accounting practices and Enron style way of doing business. It also verifies that there were more than enough warning signs of the impending implosion 4 years later.
WSJ 10/4/2004: Fannie Mae Enron?
For years, mortgage giant Fannie Mae has produced smoothly growing earnings. And for years, observers have wondered how Fannie could manage its inherently risky portfolio without a whiff of volatility. Now, thanks to Fannie’s regulator, we know the answer.
The company was cooking the books. Big time.
We’ve looked closely at the 211-page report issued by the Office of Federal Housing Enterprise Oversight (Ofheo), and the details are more troubling than even the recent headlines. The magnitude of Fannie’s machinations is stunning, and in two key areas in particular they deserve to be better understood. By improperly delaying the recognition of income, it created a cookie jar of reserves. And by improperly classifying certain derivatives, it was able to spread out losses over many years instead of recognizing them immediately.
The facts are that Kenneth Lay and Enron were amateurs when compared to Fannie Mae and Freddie Mac. Enron was just politically connected. They weren’t pros like Fannie and Freddie who get a government implied “guarantee” to bail them out in case those cooked books FRY!
So, how did this all happen? How did we go 4 years with the writing clearly on the walls that these mortgage giants were BS’ing their shareholders, our government and the media? That’s easy to answer. MONEY! Fannie and Freddie have spent a combined total of $170 million in lobbying Washington since 1998 and 19.3 million in campaign contributions to well known Republicans and Democrats according to Politico. More
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