The Fannie Mae scandal hasn't been getting much play outside of the financial papers, but it should because you and I will have to pay for it. This from the WSJ:
For years, mortgage giant Fannie Mae has produced smoothly growing earnings. And for years, observers have wondered how Fannie could manage its inherently risky portfolio without a whiff of volatility. Now, thanks to Fannie's regulator, we know the answer. The company was cooking the books. Big time.
We've looked closely at the 211-page report issued by the Office of Federal Housing Enterprise Oversight (Ofheo), and the details are more troubling than even the recent headlines. The magnitude of Fannie's machinations is stunning, and in two key areas in particular they deserve to be better understood. By improperly delaying the recognition of income, it created a cookie jar of reserves. And by improperly classifying certain derivatives, it was able to spread out losses over many years instead of recognizing them immediately. . . .
Fannie Mae isn't an ordinary company and this isn't a run-of-the-mill accounting scandal. The U.S. government had no financial stake in the failure of Enron or WorldCom. But because of Fannie's implicit subsidy from the federal government, taxpayers are on the hook if its capital cushion is insufficient to absorb big losses. Private profit, public risk.
Here's another cheery story...this one about United having to terminate their pension plan.
http://www.csmonitor.com/2004/1004/p02s01-usec.html What's alarming is that this is going to happen to the other large airline carriers as well. And guess who will pay the bill?
Mr. Ash, like other aviation experts, believes that once United defaults other carriers like Delta and USAirways will also have to find a way to dramatically reduce their pension obligations.
USAirways, which already has defaulted on its pilots' pension plans during its first trip to bankruptcy court in 2002, has warned that it may default on others as well. Delta, which is teetering on the edge of bankruptcy, may have no choice but to follow suit.
For the PBGC, which is already facing a long-term funding gap, that scenario could spell trouble. That's in part because as the number of companies switching from traditional pensions to 401(k) plans drops, so does the PBGC's premium income. Currently, the remaining companies pay the PBGC $19 per employee to insure their defined-benefit pension plans.
While the PBGC can charge more if a pension fund is underfunded, companies don't always pay up, as the Bethlehem Steel case illustrates. It didn't pay the increased costs even after it stopped paying into its plans. And the current premiums do not reflect the real costs of insuring the pensions. For example, over the years United has paid into the PBGC only $50 million dollars. If it defaults, it will saddle the government insurance agency with $6.4 billion dollars worth of claims.
For years, mortgage giant Fannie Mae has produced smoothly growing earnings. And for years, observers have wondered how Fannie could manage its inherently risky portfolio without a whiff of volatility. Now, thanks to Fannie's regulator, we know the answer. The company was cooking the books. Big time.
We've looked closely at the 211-page report issued by the Office of Federal Housing Enterprise Oversight (Ofheo), and the details are more troubling than even the recent headlines. The magnitude of Fannie's machinations is stunning, and in two key areas in particular they deserve to be better understood. By improperly delaying the recognition of income, it created a cookie jar of reserves. And by improperly classifying certain derivatives, it was able to spread out losses over many years instead of recognizing them immediately. . . .
Fannie Mae isn't an ordinary company and this isn't a run-of-the-mill accounting scandal. The U.S. government had no financial stake in the failure of Enron or WorldCom. But because of Fannie's implicit subsidy from the federal government, taxpayers are on the hook if its capital cushion is insufficient to absorb big losses. Private profit, public risk.
Here's another cheery story...this one about United having to terminate their pension plan.
http://www.csmonitor.com/2004/1004/p02s01-usec.html What's alarming is that this is going to happen to the other large airline carriers as well. And guess who will pay the bill?
Mr. Ash, like other aviation experts, believes that once United defaults other carriers like Delta and USAirways will also have to find a way to dramatically reduce their pension obligations.
USAirways, which already has defaulted on its pilots' pension plans during its first trip to bankruptcy court in 2002, has warned that it may default on others as well. Delta, which is teetering on the edge of bankruptcy, may have no choice but to follow suit.
For the PBGC, which is already facing a long-term funding gap, that scenario could spell trouble. That's in part because as the number of companies switching from traditional pensions to 401(k) plans drops, so does the PBGC's premium income. Currently, the remaining companies pay the PBGC $19 per employee to insure their defined-benefit pension plans.
While the PBGC can charge more if a pension fund is underfunded, companies don't always pay up, as the Bethlehem Steel case illustrates. It didn't pay the increased costs even after it stopped paying into its plans. And the current premiums do not reflect the real costs of insuring the pensions. For example, over the years United has paid into the PBGC only $50 million dollars. If it defaults, it will saddle the government insurance agency with $6.4 billion dollars worth of claims.
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