FREDDIE MAC "SCANDAL" ENDS UP A NOTHING

Freddie Mac execs discovered that the next quarter of earnings was going to be in the toilet unless they did "something". The "something" they did was bury profits for one quarter and carry them forward to the next quarter, thus "smoothing" rates. This ain't legal, but it ain't Armageddon either.

The broad consensus about both Freddie Mac and Fannie Mae is that while both need an overhaul both are necessary. Both agencies can borrow from the Treasury at rates below anything quoted and then back loans (buy them from banks guaranteeing the banks a profit on the loans) or make loans directly. These agencies have access to $2.25 billion line of credit from the U.S. Treasury; exemption from all state and local taxes except property taxes; and higher demand for their securities, since the Government gives those securities the same preferred investment status as Treasury debt. A certain percent of loans are made to the least credit worthy and most people in both parties believe that making home ownership available to the greatest number of people is very important. This support comes from construction, banking, mortgage, and civil rights groups. The ideal as far as liberals go, is to make these two lending agencies another welfare scheme. They would like to "lend" money to people who have no hope or plan to pay it back. The acts under which both agencies operate is a lexicon of politically correct code words like: fair lending, census tract targeting, under served areas, central cities, and various other definitions that mean lending to blacks or Hispanics and not lending to Asians, whites, Indians etc. Nothing will change this.

The "news" of carrying profits forward was mostly "in the market" and the only people who didn't know about the problems were the usual suspects: the everyday investor speculator who reads the Journal, New York Times, and other tip sheets for investing information.

Real estate is still a potential problem because of the speculation in that market but criminal activity within Freddie and Fannie won't be a factor.