Fannie's Fair Value of ASSets

Jonathan Weil discusses why FNMA & FHLMC fair values, much like Wells Fargos creative bookkeeping, are anything but...

Brace yourselves, taxpayers. Uncle Sam soon may have to write a very large check.

Forget everything you've read about how woefully undercapitalized Fannie Mae and Freddie Mac are. The situation is much worse.

Fannie said its net assets were worth $12.2 billion, while Freddie showed negative $5.2 billion.

FNMA showed $17.8 billion of net deferred-tax assets on its GAAP balance sheet.

Without $14.3 billion of tax adjustments, the fair value of Fannie's net assets would have been negative $2.1 billion, by my math.

Exclude deferred-tax assets entirely, and it would have been negative $19.9 billion.

As for Freddie, it showed $16.6 billion of net deferred-tax assets under GAAP.

Take out the tax write-up, and Freddie's net assets had a fair value of negative $15.3 billion.

Exclude deferred-tax assets entirely, and that falls to negative $31.9 billion.

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