Frightening Restatement of Earnings By $1.2 Billion 

(Washington, D.C.) The Council for Citizens Against Government Waste (CCAGW) reacted today to news that Fannie Mae has miscalculated the value of its mortgage equities by $1.2 billion and would have to restate earnings in its third-quarter financial statement.  CCAGW called upon Congress to immediately enact legislation to establish a strong regulator this year.

“Ordinary ghosts and ghouls are frightening enough on Halloween.  Taxpayers and investors should be spared from the phantom accounting numbers at Fannie Mae.  There is no time to waste to enact legislation that would establish a strong, independent federal regulator for Fannie Mae and Freddie Mac in order to avoid future shock to the markets.  Yesterday’s revelations about the restatement of earnings by Fannie Mae indicate that the accounting issues that have plagued their counterparts at Freddie Mac may not be isolated glitches,” CCAGW Director of Special Projects Leslie K. Paige said.

“Over the last few months Congress has held numerous hearings and been reassured that all is well at Fannie Mae, that the accounting discrepancies and misstatements at Freddie Mac have not occurred at Fannie Mae and that their business practices were above board.  There is no telling what other tricks the GSEs will spring on us in the next few months.  Congress created this entities and only Congress can rein them in.  We need more members of Congress like Rep. Chris Shays (R-Conn.), who has called for a detailed investigation into Fannie and Freddie’s lobbying army,” Paige added.”

Quoted in yesterday’s Wall Street Journal, James Bianco of Binaco Research, LLP, said “Both campanies have a credibility problem and this only makes it worse…Investors look at this stuff, throw their arms up in the air and say ‘We don’t understand this stuff, you don’t understand this stuff, and the companies don’t understand this stuff, but it doesn’t matter, because the government is going to back it anyway.’”

“Fannie and Freddie may just as well be re-named government sponsored poltergeists, or GSPs.  For the sake of the taxpayers, the housing industry and the economy as a whole, it’s about time that somebody gets a handle on all of ‘this stuff?’” Paige continued.

There are currently two bills pending in the Senate which would set up a safety and soundness regulator at the Department of the Treasury.  In order to be effective and safeguard the interests of taxpayers and fully insulate them from potential bailout for a GSE in case of financial failure, the new regulator must have broad authority to review new activities, adjust both minimum and risk-based capital requirements, and have an independent source of funding to underwrite their regulatory activities.

“In addition to these basic reforms, Congress should also repeal the GSEs’ exemption from the nation’s securities disclosure laws.  They have been permitted to operate for too long without adequate scrutiny.  When even Wall Street analysts admit that they don’t know is going on with the GSEs’ books, taxpayers and investors ought to be very, very afraid.”

The Council for Citizens Against Government Waste is the lobbying arm of Citizens Against Government Waste, the nation's largest nonpartisan, nonprofit organization dedicated to eliminating waste, fraud, abuse and mismanagement in government.