Wall Street Journal October 4, 2004:

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 payers, 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 the 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.

Now, let’s read some “real” modern day propaganda straight from the horses (Bernake) mouth:

Fox Business July 16, 2008: Fannie Mae, Freddie Mac Not in Danger of Failure, Bernanke Says

WASHINGTON — Federal Reserve Chairman Ben Bernanke told Congress Wednesday that troubled mortgage giants Fannie Mae and Freddie Mac are in “no danger of failing.”

CNBC July 16, 2008: Bernanke: Fannie, Freddie don’t face failure

The pledges of aid have raised concerns on Capitol Hill and elsewhere about the government’s role in intervening to ease such financial troubles and the risk posed to taxpayers.

Just a week earlier, the New York Times said this about Fannie Mae and Freddie Mac, “Freddie Mac stock has lost 47 percent of its value in the last week alone. Fannie Mae shares have fallen 45 percent during that period. Both companies’ shares are trading at their lowest levels in nearly two decades.”

Bloomberg said this, “The government is discussing placing them in a conservatorship, under which the companies’ shares would be worth little or nothing and losses on mortgage holdings would be covered by taxpayers, the Times said, citing unidentified officials briefed on the matter. Their shares are plunging and their borrowing costs are rising as investors worry the companies will suffer losses larger than the $11 billion they have lost in recent months, the Times said.

Moe - Toxic Mortgage Poster Children, Fannie and Freddie are precariously treading above water as they wait for the government initiated, US Treasury sponsored and tax payer blood money to save them from a certain death by toxic mortgage backed security poisoning and Enronitis Accounting.

 

The blood (money) has been drawn (involuntarily) by our government from American citizens’ veins and the head Doctor, Secretary Hank Paulson waits in the Wall Street shadows with a bail out syringe loaded with 30 billion cc’s to inject into Freddie and Fannie as needed for pain.

 

Wait a second!

Did you read what I just wrote? Do you “really” understand what “may” happen to our credit markets if Fannie Mae and Freddie Mac are capitalized by government backed money?  It is bad enough that we ignored the facts and truth over the last 4 years and now we are going to let these giants rule the credit markets like escaped prisoners on on steroids.

Peter Miller, of FHALoanpros.com , wrote a very interesting  article today titled, “The Mortgage Story You Haven’t Heard“ , that addresses exactly what is “NOT” being addressed by the media and the blogosphere.

Peter Miller:

The points made are important because with few facts, little balance and great haste we are quickly moving toward the nationalization of both Fannie Mae and Freddie Mac. Before this happens it might be good to consider the consequences — both intended and otherwise — that are likely to emerge from the take-over of either company.

Right now we have a functioning secondary market that buys local loans, packages them and then sells mortgage-backed securities to investors worldwide. Fannie Mae and Freddie Mac are crucial to the secondary market, disable one or both companies, have them taken over by federal stewards, and the result could be a smaller secondary marketplace, one that buys far fewer local mortgages.

If you want to see home values shudder and fall, if you want to see the value of your house tank, then damaging the secondary market would certainly accomplish that task, especially now when the National Association of Realtors says existing home prices in June fell 6.1 percent from a year ago and loan applications are down 34 percent from a year earlier according to the Mortgage Bankers Association.

I think Paul A. Gigot of The Wall Street Journal really put this all in plain English for us all to understand what is really happening here: The Fannie Mae Gang

Fan and Fred also couldn’t prosper for as long as they have without the support of the political left, both in Congress and the intellectual class. This includes Mr. Frank and Sen. Chuck Schumer (D., N.Y.) on Capitol Hill, as well as Mr. Krugman and the Washington Post’s Steven Pearlstein in the press. Their claim is that the companies are essential for homeownership.

Yet as studies have shown, about half of the implicit taxpayer subsidy for Fan and Fred is pocketed by shareholders and management. According to the Federal Reserve, the half that goes to homeowners adds up to a mere seven basis points on mortgages. In return for this, Fannie was able to pay no fewer than 21 of its executives more than $1 million in 2002, and in 2003 Mr. Raines pocketed more than $20 million. Fannie’s left-wing defenders are underwriters of crony capitalism, not affordable housing.

So here we are this week, with the House and Senate preparing to commit taxpayer money to save Fannie and Freddie. The implicit taxpayer guarantee that Messrs. Gray and Raines and so many others said didn’t exist has become explicit. Taxpayers may end up having to inject capital into the companies, in addition to guaranteeing their debt.

The abiding lesson here is what happens when you combine private profit with government power. You create political monsters that are protected both by journalists on the left and pseudo-capitalists on Wall Street, by liberal Democrats and country-club Republicans. Even now, after all of their dishonesty and failure, Fannie and Freddie could emerge from this taxpayer rescue more powerful than ever. Campaigning to spare taxpayers from that result would represent genuine “change,” not that either presidential candidate seems interested.

Moe - So there you have it. The lies, the cover ups and now, the making of a worldwide disaster.