"More" Problems For Fannie? It's Just Begun

Armando Falcon, the head of OFHEO, which is the regulator of Fannie Mae, was interviewed by the Associated Press and he didn't have good news. "Asked Tuesday whether further discoveries could emerge from OFHEO's investigation, Falcon said, 'We very well might find more problems as we continue to review the company's accounting.'"

Might? Fannie has thousands of "special entities" off balance sheet. The size of the disaster is unprecedented. And Mr. Falcon thinks the OFHEO saved the day. "If the agency hadn't acted to identify and correct problems at Fannie Mae, Falcon said, 'I think they would have eventually manifested themselves in the form of some larger problem that might have created some kind of systemic disruptions' in the housing market."

Time will tell on that one. Mr. Falcon has already turned in his resignation and the replacement of the regulator is almost certain; that doesn't sound like a triumph of enforcement. Without going into the politics being thrown about, both Democrats and Republicans were happy to have the GSE's making easy money available for years and the wrangling now won't put the bubble back in the bottle. At least there is this, "The Justice Department is pursuing a criminal investigation."