Wednesday, March 02, 2005

Special Purpose Entities; FNM Another Enron?

You may have heard there are continuing accounting issues at Fannie Mae. However, it was reported by that some of the problems center around off-balance sheet financing. This is accomplished by setting up Special Purpose Entities and parking liabilities or losses there, or at least thats how Enron did it.

The accounting rules were tightened up post-Enron, but the SPEs are still used. Fannie Mae is an example. Apparently some of the grumbling from congress and regulators is due to Fannies accounting for, or lack of, its own off-balance sheet debt.

TheStreet reports, "It's difficult to determine the economic ramifications of the newest accounting issues because Fannie provided few details...But there's little doubt that Fannie relies heavily on off-balance-sheet financing." Janet Tavakoli, a structured finance and derivatives consultant said "I would guess they are using them a lot because they are wonderful tools for getting things off your balance sheet," Rest assured I will be watching for further developements.


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