Fannie Mae-No Politics (FNMA)

[capitalismforever]

Of course the NWS changed the dividend. But the NWS swept the earnings, not the reserves. And why would the NWS impact the reserves? There should be $100 Billion still in reserve or did F&F run at a deficit for several years.

I believe you're asking me about retained earnings? The NWS created a deficit (accumulated deficit). Retained earnings really isn't a "reserve" in the true sense of the word because "retained" covers the ability of the company to either retain that "reserve" in cash, pay-out as a dividend, or reinvest those funds back into the company. The latter is what most companies do.

So, the $100b that was booked as retained earnings, is simply a scorecard to show what amount (in excess of dividends that were paid out) was retained by the company. How they were used is a different story. In Fannie's case, most of their retained earnings are re-invested into the business by insuring and/or purchasing mortgages.

Why retained earnings has turned into accumulated deficit is because of how they are calculated:

Retained earnings = beginning retained earnings balance + net income for the period - dividends paid.

Because of the net worth sweep, net income has been a deficit and used to deplete the book value of retained earnings to the point it has become the opposite: accumulated deficit.

Hope this answered your question.