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Fannie Mae "Mistake"


In a recent post, we pointed out a large discrepancy between the company's income statement and balance sheet: shareholder equity dropped while earnings were positive. After much searching the only thing we could conclude was that the company was not required to report unrealized losses on the income statement; they could not escape reporting them on the balance sheet.

In a surprise announcement, the company yesterday said that they will be adjusting the balance sheet, specifically shareholder's equity, by the $1.3 billion discrepancy because of "computational errors": they "found" $1.3 billion in urealized gains.

Frankly, we don't even know what to say about this.

If the company made "computational errors" to the tune of $1.3 billion we must ask if it is competent to manage perhaps the most important and complex financial convexity portfolio in history.

If it is being disingenuous by massaging a problem so obvious that it was called on by us (and others) then, well, we don't know what to say about that either.
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