One day, we'll be amazed at the level of scandal, incompetence and hijinx at Fannie Mae. This will make the S&L crisis/scandal look like childs play. The 2008 hearings on the corrupt Real Estate Industrial Complex and Housing Bubble causes will be the death of Fannie Mae I am sure.
The fall of mortgage giant Fannie Mae -- and its counterpart Freddie Mac -- is the greatest financial tragedy I've witnessed in almost three decades of writing about Washington business.
Once the most respected companies in town, Fannie Mae and Freddie Mac fudged their bookkeeping for years, stretching accounting rules like bungee cords to create fiscal fiction, deceiving shareholders and manipulating the regulatory process.
We still don't know the truth about their finances, but last week we found out how much it is costing Fannie Mae to find out.
Would you believe $800 million?
Not $800 million in mistakes, $800 million just to review the records, find the phony accounting and come up with clean numbers.
There are 2,500 employees of outside contractors working on Fannie's books, officials say.
Congress dares not complain because it is culpable. Fannie Mae's and Freddie Mac's lobbyists have so totally ingratiated themselves with lawmakers that they've been able to fend off regulatory initiatives for the past two decades.
If they failed, they could take down the stock market, the bond market, the housing market and perhaps the entire U.S. economy because their stocks and bonds are so widely held and they are so essential to the mortgage market.
May 19, 2006
The Fannie Mae accounting scandal: $800 Million and 2,500 investigators
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I wish I had THAT contract!
They will not be ALLOWED to fail, they are that entrenched in the system!
By the time this is fully investigated, ENRON will look like a warm glass of milk...
Good article. Was Jerry Knight an early bubblehead or is he just arriving at the party?
Freddie and Fannie are all about a house of cards. For years, they have manipulated and smoothed out their earnings so that they appeared to grow at a steady 12-15% rate. Their accounting principles are so complicated that they do not even understand them, and the justification for hedging risk for holding over $3BILLION dollars of mortgage-backed securities are a whole host of derivatives that no one (including them understands). Their derivatives system tries to protect against pre-payment risk and interest rate risk, but what protects them against default? Moreoever, they are not regulated by the SEC, but rather, OFHEO - - ever heard of them?
The next series of Enron, Worldcom, etc. . . .
When many of the loans go bad in 2006,2007, and 2008 Fannie Mae will need to bailed out by the US Gov.
That's going to be a big check the next president is going to write.
The gov'y BETTER NOT bail out freddie and Fannie. If they fail, so what?
This is the new motto of the hypercapitalists in power.
Instead of "shrink the government", it's "bloat---then loot---the government".
Let Fannie Mae sink. Hasn't the whole industry just driven up the price of housing in the US since it's creation anyway.
Get rid of her and let the cost of housing fall.
The great irony is Fannie and Freddie say they enable Americans to afford a home, if they disapeared then more Americans could afford home because prices would collapse.
All Fannie and Freddie do is create a rigged market for mortgages so pushing house prices up in the largest pyramid scheme in human history, all backed by the US taxpayers.
The price of a home equals the price of lumber plus a little for the land - THERE IS NOT LAND SHORTAGE IN AMERICA.
you need to get a clue. Fannie and Freddie are probably in better shape for a downturn then most banks. They buy conforming loans with a max 80%LTV as the primary lien. They also have to buy higher credit quality than most. It is the banks giving these negative amortization and interest only loans that need to really be worried as they are the ones that will need to be bailed out.
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