Fannie Mae-No Politics (FNMA)

[955]

Again, appreciate your analysis. In your view, what was the net effect of the shift to Mark-to-Market accounting principles on Fannie & Freddie's DTA situation? Did that strengthen Gov justification for placing them in conservatorship? Was that a reasonable thing to do from an accounting perspective or was it just a tool used simply to justify conservatorship? (We know how Gov likes to twist facts in order to justify their political motivations.)

After reading the 10-K's from 2004-2007, I come to a completely different conclusion that's undeniable to such an extent that in 2007 the company stated:

"We recorded net deferred tax assets of $13.0 billion and $8.5 billion as of December 31, 2007 and 2006, respectively, arising to a large extent from differences in the timing of the recognition of derivatives fair value gains and losses for financial statement and income tax purposes."

The reason DTA's have grown to the extent it has is through derivative contract losses. That's just a fact. Sure it's true, in a crafty sort of way, that derivatives didn't cause FnF to collapse. But over time a $3b loss here and a $5b loss there adds to an ever growing DTA account that now must be discounted due to tax law changes. How convenient for them to recognize that a DTA charge off was the issue and ignore the fact that the existence of the DTA was due large in part to derivative losses. That's called crafty accounting where I come from.