To: russwinter who wrote (3305 ) 12/13/2003 11:22:46 AM From: mishedlo Read Replies (1) | Respond to This is interesting Russprudentbear.com I will definitely no longer give Freddie Mac the benefit of the doubt. At the minimum, I will assume that Freddie is more financially vulnerable, with some potentially serious holes in its risk management strategies and implementation. I will also give some credence to the minority view that perhaps the Fed is sticking with short-term rates to protect the financially fragile GSEs. And, importantly, we haven’t heard the last from OFHEO’s Director, Mr. Falcon. His organization is in a continuing examination of the role played by the Wall Street firms and appears poised to take a much closer look at Fannie. He is even threatening to limit Freddie’s retained portfolio growth and require additional capital until the mess is resolved. As a regulatory body – with congress incapable of surmounting the powerful GSE lobby – Mr. Falcon and OFHEO have an exciting new lease on life. Perhaps they will even develop the teeth that a disgraceful Washington has never allowed them to grow. The Fraud at Freddie is certainly another clear indictment of Wall Street. It still amazes me that there has been so little backlash, despite the instrumental role The Street played in a series of major frauds including the hideous Enron affair. But, then again, contemporary finance has Wall Street in firm control of the purse strings, as well as the power center for sustaining the revered financial and economic Bubbles. The Wall Street/”beltway” partnership is stronger than ever; The Street has never seen itself as more bulletproof. Thomas Jones, Chairman of the audit committee, recalled expressing his views to Leland Brendsel in March 2003: ‘Leland, with all due respect, in my view you’ve put the company in a very difficult situation. You’ve effectively lost control of our accounting and financial reporting status and we’re now sitting in a situation where we don’t have audited financial statements in the market and we’re one of the most critical financial entities in the capital markets. In my view it is unpardonable to not have audited financial statements that investors can rely upon and in my view in this league you don’t get second chances. You’ve been paid a lot of money to do this job and to me it’s unacceptable that we don’t have audited financial statements that investors can rely upon.’ The intense efforts to manage reported earnings at Freddie Mac drained the skills of many of the most talented employees of the Enterprise. Those efforts compromised the integrity of many employees and damaged the effectiveness of the internal control structure at Freddie Mac. The quest to manage earnings eventually led to the termination of the most senior executives of the Enterprise, and resulted in one of the largest restatements in U.S. corporate history.”
