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--- Begin Message --- -Caveat Lector- http://www.gsereport.com/2003/Nov%2027-Dec%2015.pdf.
According to what I've detected in financial journals [like the summary at the URL above], the next wave of Enron-esque corporate scandals will erupt within the federal government itself -- specifically, inside those government agencies where multi-billion-dollar loan sharks Freddie Mac (mortgages) and Fannie Mae (school loans, lately mortgages too) have too long been allowed to run rampant at taxpayers' expense.
"Bigger than the S&L scandal [of the '80s]," some are saying. Not just Wall Street bankers + crooked accountants + corporate predators, as it was with Enron and WorldCom. This time, it's Wall Street bankers + crooked accountants + corporate predators + the US Treasury, far deeper than Enron and sending shock waves throughout the already horrible federal deficit and national debt.
<snippets>
"This is reminiscent of the political clout that the savings and loan industry once wielded in the 1980s. Political favoritism was justified by appeals to help housing and promote thrift. By the time that political class realized the danger it had created it was too late. This time, Congress has a chance to act before we have âdÃjà vu all over again.â We only hope they take it. (Wall Street Journal editorial, 11/25/03)
"In an editorial, the Sunday Advocate (Baton Rouge, LA) addressed the urgent need for GSE regulatory reform, noting that Representative Richard Baker (R-LA) has been proven right about the need for vastly more aggressive federal monitoring of GSEs. While precious little of what Baker has proposed has made it into law, that must now change in light of Freddie Macâs earnings restatements, which Baker calls âEnron country.â Only a weak agency in HUD with a $39 million budget oversees these mortgage giants. Bakerâs call for a stronger regulatory scheme cannot be reasonably rejected by Congress. (Sunday Advocate editorial, 11/23/03)
"The Clarion-Ledger (Jackson, MS) notes that another scandal has undermined investor confidence in Wall Street and trust in the ability of government to ensure a level playing field. Freddie Mac and Fannie Mae now join the ranks of such rogues as Enron, Worldcom, etc. The ârotâ of corruption has now reached center, and the loss of trust and confidence is devastating. The Bush administration is on watch now during some of the worst financial scandals in American history. (The Clarion-Ledger editorial, 11/29/03)
"As part of the $820 billion omnibus appropriations bill, House and Senate conferees agreed to provide $7.5 million in additional funding for special investigations of Fannie Mae and Freddie Macâs accounting problems.
"FDIC: Basel II could stretch US housing/GSE safety net:
The FDIC sparked a public dispute among regulators, when it released a study questioning the wisdom of proposed new international capital rules for banks. The FDIC said the Basel II proposals could sharply reduce bank capital requirements, hampering the ability of U.S. officials to prevent bank failures. The FDIC suggested the public interest would be better served by retaining some sort of minimum capital requirements. The FDIC study predicts that capital levels at U.S. banks affected by the Basel proposals would fall by at least 18% to 29% and in some cases by more than 40%.
"Federal agency debt surges:
According to the Bond Market Association, long-term debt issuance by federal agencies totaled $1.01 trillion during the first three quarters of 2003, up 36.5% form $740.0 billion issued for the same period last year. The strong mortgage market, supported by historically low interest rates and high volumes of conforming residential home mortgage originations, contributed to the strong issuance levels.
"The Federal Home Loan Bank System totaled $483.9 billion in issuance, up 62.5% from $297.8 billion issued during the first three quarters of 2002. Long-term
issuance by Fannie Mae surged during the first nine months of the year, totaling
$272.4 billion, up 57.9% from the same period last year. The increase in Fannie
Maeâs issuance was, to a great extent, driven by the increase in its retained
mortgage portfolio, which totaled $919.4 billion as of September 30
"Chuck Chuck Greener, senior vice president of Fannie Maeâs communications, objected to the Wall Street Journalâs claim that Fannie Mae worked to âstop a bill in Congress that would transfer its regulation to the Treasury Department."
"Fast Freddieâ slow to offer details in its $5 billion restatement:
On November 21, 2003, Freddie Mac released its restated (unaudited) financial statements for 2000, 2001 and 2002, which filled 150 pages of financial results. Analysts were disappointed to find that Freddie will not be releasing its 2003 results until the end of June 2004 because of the lack of proper accounting infrastructure. Freddie remained uncertain when it would be able to start reporting earnings on a timely basis. It will be 2005 before Freddie Mac gets its records in order so that it can register with the SEC.
"Analysts said it was difficult to identify how much of the volatility in Freddieâs earnings was due to accounting mistakes ... The companyâs previous management team âmassagedâ the companyâs earnings to give the impression of a smooth and steady flow. The restatements showed Freddieâs earnings are far more volatile than it had previously reported. According to CFO Martin Baumann, Freddie Mac still lacks effective internal controls.
"Reactions to Freddieâs restatements:
âOne of the nationâs largest financial institutions [Freddie Mac], a backbone of the U.S. housing market, conceded that it had overstated earnings in 2001 by $1 billion -- while offering only a throwaway explanation,â wrote Peter Eavis on TheStreet.com. âThe federal entities probing Freddie, including the Justice Department, will certainly be interested to learn why Freddie overstated its earnings and why it understated them.â He added, âthe Freddie restatement literature is rife with talk of correcting past âerrors.â
"Many of the transactions it examined, including some new ones detailed on Friday, were intentionally dreamed up by Freddie managers. These werenât mistakes, and insisting otherwise only shows that Enron and Worldcom debacles changed nothing in corporate America. The only other explanation is that Freddie lawyers, already preparing a defense against the government, advised the company to use neutral sounding âand disgustingly deceitfulâ term [errors]. It will be sweet indeed when people go to jail for the so-called errors.â
"During 2001 and 2002, Freddie used derivatives and every other possible strategy to produce the earnings it wanted. Much of its accounting, we now know, was totally misbegotten; because Freddieâs financial folks were too incompetent to understand the rules. Had Freddieâs charade continued, the profits âstored upâ would have been fed back into earnings and outsiders would never have been the wiser.
"Thereâs a lesson to be learned for conniving managers: Donât let your outside
accounting firm [Arthur Anderson] fail. After Anderson tanked, Freddie hired
PricewaterhouseCoopers, who balked at certifying the GSEâs 2002 audit. Then, the house came tumbling down and its senior management was fired. Now, Freddie has handled its apparent inability to report correct profits by simply ducking the job. It has put out no earnings reports for 2003.
âIt is really incredible to me that we have a major public entity that cannot give us financial information,â said former investment banker Frank Partnoy, professor at the University of San Diego School of Law. Partnoy said the situation indicates either that Freddie is âmuch more primitiveâ than other financial institutions or that âthe reports we get from banks, if they were truly scrubbed down the way Freddieâs have been, would expose similar errors.â (Bureau of National Affairs, Richard Cowden, 11/24/03; TheStreet.com, Peter Eavis, 11/21/03; International Herald Tribune, Kenneth N. Gilpin, 11/22/03; Washington Post, David S. Hilzenrath and Kathleen Day, 11/22/03; Fortune Magazine, Carol J. Loomis, 11/22/03)
"On CNN Money Morning with Kathleen Hays, David Kotok, chief investment officer at Cumberland Advisors, responded to the bad news at Freddie by saying, âInvestors are going to have to face a reevaluation of government agencies. Fannie, Freddie, the news continues to flow. It isnât good. There are more and more questions about the integrity of the reporting and weâre starting to see some changes in the markets. Weâre starting to see people come away from agencies, away from mortgage credits, and say, I donât know whatâs brewing there but I donât like it and maybe thereâs more credit risk. And then you see government panels trying to investigate. Weâre going to get more of that in the next Congress. I think itâs a bad situation and itâs worsening.â (CNN Money Morning, Kathleen Hays, 11/21/03)
"On Market Roundtable on CNNfn, Allan Chernoff raises the issue of "smoothing out" of earnings, which Freddie Mac was clearly doing. He states, âClearly they were not
the only guys in the game. So, many companies were engaged in that. Do you think
thereâs much more to come in terms of learning of companies that were sort of playing with the books here?â Neil Weinberg, senior editor of Forbes responds, âWell, I think it depends on how far we dig. But obviously this is something, like a lot of scandals that have come out, that was standard operating procedure on Wall Street. And all of a sudden people lost money and now the rules of the game are changed and itâs, 'oh my goodness, this isnât allowed anymore' ..." www.ctrl.org DECLARATION & DISCLAIMER ========== CTRL is a discussion & informational exchange list. Proselytizing propagandic screeds are unwelcomed. Substanceânot soap-boxingâplease! These are sordid matters and 'conspiracy theory'âwith its many half-truths, mis- directions and outright fraudsâis used politically by different groups with major and minor effects spread throughout the spectrum of time and thought. That being said, CTRLgives no endorsement to the validity of posts, and always suggests to readers; be wary of what you read. CTRL gives no credence to Holocaust denial and nazi's need not apply.Let us please be civil and as always, Caveat Lector. ======================================================================== Archives Available at:
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