Thursday, October 07, 2004

FANNIE and OFHEO House testimony

Well, after watching Falcon and Raines on CSPAN yesterday for several hours, I would say I am not convinced that OFHEO really has anything on them. They might, but it wasn't clear from the testimony, and I would not be surprised if OFHEO was under pressure to deliver a damning report and went about it in an amateurish way.

The $200M deferral looks suspicious. The question of whether FNM's hedge accounting for their derivatives was compliant was answered in contradictory fashion by OFHEO and FNM. OFHEO was definitely wrong at the beginning when they answered that the value of FNM's retained mortgage portfolio could easily be described by a single number instead of a range. The inputs into any valuation model are uncertain, so a range is necessary and it is this range that can be manipulated for cookie jar purposes.

I must say Raines and Howard are more impressive figures than Falcon and company (who had a really hard time explaining their report to the subcommittee). But on the other hand Andrew Fastow of Enron was also a smooth and impressive-sounding guy.

In any case, the public focus on the huge compensation of senior FNM execs (mostly from stock grants, I believe, not bonuses) will be a black eye.

I suppose we'll have to leave it to the SEC and the fourth estate to sort this all out :-)

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