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Freddie Mac Lacks Candor

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Elite Member
Jan 16, 2002
Professional Status
Certified General Appraiser
The plot thickens: From this mornings July 18th News:

For full story go here:


Regulator says probe of Freddie Mac accounting showed 'lack of candor'

By MARCY GORDON, AP Business Writer

WASHINGTON (July 17, 11:47 a.m. ADT) - A federal regulator told Congress Thursday that attorneys investigating accounting problems at housing finance giant Freddie Mac showed a "lack of candor" that prompted him to begin a government inquiry.
Falcon, a Clinton appointee, also said in his testimony to the Senate Banking Committee that Freddie Mac's accounting troubles were more extensive than many policymakers had realized.
Falcon said the attorneys hired by Freddie Mac's board of directors to investigate "had not been fully forthcoming" with regulators in late May.

David C. Johnson

Senior Member
Jan 15, 2002

"...Fannie Mae reported Tuesday a 25 percent drop
in its second-quarter earnings caused by changes
in the value of derivatives contracts, even though
its business expanded significantly. The company
also said it will be less profitable in the second
half of the year..."

Translation: Derivatives can burn bad!

...And Federal Reserve Chairman Alan Greenspan, a
critic of how the companies operate, suggested
to senators Wednesday that Congress should
"construct a regulator" for them. Greenspan also
called Fannie Mae and Freddie Mac "very well-run
companies - leaving aside the most recent
problems with regard to accounting."

I watched some of this Congressional testimony. On one panel there was the owner of a specialized accounting firm testifying. It appeared he may have been hired by the Committee to provide an overview of the situation of the two Maes. He came across as real credible in his reporting and credible with his suggested course of action (a new oversight authority as discussed in the previous article you posted). His message appeared to be -- while he was careful with his wording -- that there are MAJOR problems. I previously posted in another thread on my belief in the inevitability of a strong positive economic turnaround in the cards regardless of ineffective, if not counterproductive, recent economic policy. But I am downgrading that prediction for several reasons (Rukeyser last week, for one)-- but partly based on the look in this guy's eyes and the tone of his voice. It was as if he were trying to get across the following:

"Look fellas, read between the lines liberally in what I am about to
say because while I want you to "get the picture -- and you
sure as hell better get the picture
-- I do not want to start
any panic dumping of the stock all around the world tomorrow..."

Greenspan has the exact same dilemma. However, we can be sure he's glad he's on the record as having been a critic, while probably wishing he had been even more vocal and more forceful months or years before...

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