Fannie Faces Billions in New Losses

Wall Street Journal ^ | 3/3/05 | JONATHAN WEIL and JAMES R. HAGERTY

[BurbankKarl]

recognize as much as $2.8 billion in additional losses on its derivatives portfolio because of new accounting concerns recently raised by its chief regulator, according to people familiar with the matter.

Those losses would come on top of the estimated $9.18 billion in losses related to derivatives that the mortgage giant already has said it will have to recognize as part of its still-unfinished financial restatement. If Fannie has to recognize the full $2.8 billion in additional losses, that would bring the potential size of its restatement to nearly $12 billion, further chipping into the company's regulatory capital. Fannie's regulator, the Office of Federal Housing Enterprise Oversight, or Ofheo, already has deemed the company's capital to be below its statutory minimum requirement.

Fannie flagged the prospect of additional losses last week when it cautioned investors that Ofheo had identified about a half-dozen significant accounting issues beyond those disclosed last year. In a release, Fannie said that Ofheo "indicated that it has not completed its review of all aspects of these issues, but has identified policies that it believes do not appear to be consistent with generally accepted accounting principles."

In describing the newly identified issues, Fannie provided a tightly worded list that provided no hard numbers and few specifics. Since then, both Fannie and Ofheo have declined to quantify the potential impact of any adjustment. "We're not commenting on the potential effects of last week's disclosure at this time," said Chuck Greener, Fannie's chief spokesman. An Ofheo spokeswoman also declined to comment.

However, the disclosures in Fannie's second-quarter 2004 financial report, the most recent report it has filed with the Securities and Exchange Commission, provide enough detail to allow a ballpark estimate of the losses that could stem from at least one of the new accounting issues identified in Fannie's

[BurbankKarl]

More Clintonistas

[GeronL]

The person running that thing retired getting more than $1M per MONTH?

[biff]

So, to you Freeperfinancialwizards, what is this crap gonna mean in the overall financial conditions of the good ole US of A??? It is gonna hurt worst than the saving and loan debacle but by how much?

[MKM1960]

I think we are going to have to revisit his retirement someway or other that Clintonista needs to be doing time and not the Times Crossword puzzle in his "retirement".

[kcvl]

January 10, 2003

Fannie Mae's Vice Chair Jamie Gorelick to Step Down in July; CFO Timothy Howard to Become Vice Chairman

WASHINGTON, DC -- Fannie Mae (FNM/NYSE), the nation's largest source of financing for home mortgages, today announced that Vice Chair Jamie Gorelick has advised the company she will step down on July 1, 2003, to devote substantial time to the bipartisan national commission investigating the attacks of September 11, 2001 and to pursue other interests. The company also announced that its Executive Vice President and Chief Financial Officer, Timothy Howard, will succeed Gorelick as Vice Chair, and will be nominated to be elected to the Board of Directors at the annual meeting in May.

******

Jamie Gorelick is a partner at Wilmer, Cutler, Pickering, Hale & Dorr . Prior to joining Wilmer, Cutler, Pickering, Hale & Dorr in July 2003, Gorelick was vice chair of Fannie Mae. As part of the four-person Office of the Chairman, she shared responsibility for overall management of the company, directed its efforts to reach underserved markets and oversaw Fannie Mae's external relationships, legal and regulatory affairs.

[cherry]

the MSM crooned about the Clinton ecomony, low deficits, and lots of money being made.....

Ha!.....

people made money, but not the working classes who don't invest heavily, and not the ones who got in the market late..and not wage earners who don't get big bonuses..

the standard of living IMO actually dropped for wage earners....

and now, years later, we learn about the Worldcoms, the Martha Stewarts, the Fannie Mays and the Enrons....and all the others.....

while Clinton stood aroud and made deals to his friends, while working class people fell futher behind, while everyone thought the stock market rise meant a great economy for all......

what actually happened in those feel-good Clinton years, is my taxes went up, the rich and unprincipled got richer, and Clinton took credit for the "great" economy and stock market.....

it was all a smoke screen and now we are paying the price for it, just like we are paying the price for his wimpy foreign policy now....

[MKM1960]

I hope that we are all taking notes. Hillary wants to paint her time as First Lady as co-president, let her. By the time 2008 gets here, if she was co-pres then the blame for all the messes made by his appointees can be laid at her feet. She just wants the feel good BS that she thinks America remembers about Clinton time in office. We won't have to play dirty at all just keep repeating the facts. If the next three years go as badly for them as this, she's gonna be lucky if she can run for Senator again in 2012.

[MHT]

The salary of past executives alone will cause them to lose billions! This is an outrage because the creep should be having to pay them back in fines for bad management.

[Brimack34]

Jamie Gorelick: We need to build a wall to keep her out!

[Colorado Buckeye]

bump

[SAJ]

Fannie, and to a lesser extent Freddie Mac, are levered to a degree not seen since the unlamented demise of LTCM in 1998.

IF (and there's no guarantee on this at all, m'friend) the gov't can push Fannie into DE-levering before the yield curve turns against them, which it will -- the only variable here is when -- then we can avoid going over the cliff. This will require liquidation of an enormous amount of swap spreads, swaptions, and yield arb plays that Fannie has on.

Good news: it **can** be done. Bad news: these putzes are in the same relative illiquidity position in their mkts that LTCM were after the Euro convergence trades had mostly run their course in early 1998.

How does it all play out? No idea, but, given the general incompetence of gov't, and given the fact that the public at large have practically NO idea how dangerous Fannie's situation is to the economy as a whole (and to the public's pocketbook), I'd seriously consider buying 6- to 8-month straddles on FNM, and repeating the position p.r.n. every couple of months or so (accept a 20% profit on each straddle -- it's gonna be a wild ride).

Might be a **little** early in this view, but do the trade 10 times in the next 18 months or so, and you'll win nicely on 7-8-9 of them, perhaps even all.

Best wishes to you for good trading, and FReegards!

[Lurker]

Wow. A Government run program losing billions of dollars through mismanagement, waste, fraud, abuse, and the political appointment of well connected incompetents.

I'm shocked, truly shocked that such a thing could happened.

And yes, that's sarcasm all over your shirt.

L

[Moonman62]

So, to you Freeperfinancialwizards, what is this crap gonna mean in the overall financial conditions of the good ole US of A???

I don't know but it takes the federal government only about eight hours to spend the new amount in question.

[japaneseghost]

Excuse my ignorance, what's a 'straddle'?

[SAJ]

A straddle is the simultaneous purchase of **both** a call option and a put option on a given market, with both options having the same striking price and expiration date.

Traders prefer to employ straddles as a 2-way proposition; when entered, the trader expects more (or much more) than average price fluctuation over the next X months.

Good trading to you, FReegards!

[Area51]

Jamie Gorelick is a partner at Wilmer, Cutler, Pickering, Hale & Dorr . Prior to joining Wilmer, Cutler, Pickering, Hale & Dorr in July 2003, Gorelick was vice chair of Fannie Mae. As part of the four-person Office of the Chairman, she shared responsibility for overall management of the company, directed its efforts to reach underserved markets and oversaw Fannie Mae's external relationships, legal and regulatory affairs.


5 posted on 03/02/2005 10:43:14 PM PST by kcvl
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---

Hmm that name is familiar in the mix of other Clinton term scandals. What was it she was eyeball deep in In the Justice Department under Janet Infernoe?

[kcvl]

May 23, 2004

One of the most culpable is 9/11 Commissioner Jamie Gorelick, former deputy attorney general to Janet Reno and the Clinton Administration. In a 1995 directive, she forbade communication between the CIA, FBI, and federal prosecutors, going even beyond the bounds set by liberal courts.

Jamie Gorelick created "The Wall" that allowed 9/11 to happen.

Deputy Attorney General Jamie Gorelick promoted Potts (who managed both Waco and Ruby Ridge). She was involved in Ruby Ridge, Waco and the Elian Gonzales debacles.

Deputy Attorney General Jamie Gorelick told reporters that FBI agents have not yet decided whether to cut off power. "Gorelick said the FBI remained interested in a peaceful resolution of the dispute and in settling the matter through negotiations, even though the latest round of talks collapsed.

[Kozak]

Wow. A Government run program losing billions of dollars through mismanagement, waste, fraud, abuse, and the political appointment of well connected incompetents.

And the Rats (and certain people around here) think Social Security reform would be better with the Feds "investing" the "surplus" instead of individual account holders.