Loan Giant (Freddie Mac) Overstated the Size of Its Capital Base

[dkf]

The government’s planned takeover of Fannie Mae and Freddie Mac, expected to be announced as early as this weekend, came together hurriedly after advisers poring over the companies’ books for the Treasury Department concluded that Freddie’s accounting methods had overstated its capital cushion, according to regulatory officials briefed on the matter.

Last week, advisers from Morgan Stanley hired by the Treasury Department to scrutinize the companies came to a troubling conclusion: Freddie Mac’s capital position was worse than initially imagined, according to people briefed on those findings. The company had made decisions that, while not necessarily in violation of accounting rules, had the effect of overstating the company’s capital resources and financial stability.

Indeed, one person briefed on the company’s finances said Freddie Mac had made accounting decisions that pushed losses into the future and postponed a capital shortfall until the fourth quarter of this year, which would not need to be disclosed until early 2009. Fannie Mae has used similar methods, but to a lesser degree, according to other people who have been briefed.

http://www.nytimes.com/2008/09/07/business/07fannie.html?pagewanted=2&hp

Lots more detail on the company's financial situation, especially Freddie.

[GCP]

1. There goes a slice of our retirement savings

We had shares in Fannie Mae. Now they're going to be worthless, and the two gits who were running FM and FM took home $30 million last year between them :grr:

[dkf]

2. Those creeps maximized their own gain and left the rest of us holding the bag.

Now shareholders and even nonshareholders will have to pay.