Is Freddie Mac's Balance Sheet the New Enron?

Bloomberg reports:

How long does the word ``temporary'' mean? The accountant who wants to stay employed knows the right answer: ``How long do you want it to mean?''

That new twist on an old joke goes a long way toward explaining Freddie Mac's net loss last quarter of $151 million, which was smaller than analysts' estimates. In reality, Freddie is gushing much more red ink than that. Yet hardly any of it is showing up on the company's income statement.

That's mainly because the government-chartered mortgage financier has deemed $32.4 billion of paper losses from mortgage- related securities as ``temporary.'' Freddie's big sister, Fannie Mae, is in a similar, though less extreme, position with $9.3 billion of such losses.

To ordinary folks, temporary means something of limited duration. Under the accounting rules, the word means almost nothing.

The designation means the losses don't have to be counted in Freddie's calculations of net income or capital, which is supposed to be the company's financial cushion against losses.

Most of these losses are on securities backed by subprime mortgages. About $13.2 billion of them are on securities that have been valued below Freddie's cost for a year or longer. Some of the losses stretch back more than two years. All this has occurred under the tolerant eyes of Freddie's feeble regulator, the Office of Federal Housing Enterprise Oversight.

To put this in perspective, $32.4 billion is more than double Freddie's $16 billion of shareholder equity under generally accepted accounting principles. It's almost twice as much as the company's $17 billion stock-market value. And it's infinitely greater than the fair value of Freddie's net assets, which at March 31 was negative $5.2 billion.

Enron didn't buy enough politicians.Remember, the politicians that take money from Freddie(as campaign contributions) aren't too concerned about their shifty balance sheet that could blow up the whole financial system.Freddie is sure special.Too big to fail,too big to keep honest books.We don't know of any other business that can keep books like this and not be shut down.