Peter Eavis, who started
the Fannie Mae ball rolling on Wednesday, moves
the story further today, with this rather startling and scary datapoint:
Using fair value accounting, Fannie Mae’s capital — the company’s net worth
— has declined sharply this year. According to a fair value version of its
balance sheet contained in a recent filing, Fannie Mae’s capital was $34 billion
on Sept. 30, a 20% drop from the end of last year.
Now, $34 billion in capital is still a lot of capital. But $8.5 billion is
an enormous amount of capital to lose in less than one year – especially
when you don’t seem to be making any effort to be particularly aggressive in
terms of accounting. Fannie should, by rights, be part
of the solution to the subprime crisis; at the moment, it’s looking more
like part of the problem.