What Bernanke and CONgress refused to do, it appears FASB might:

"Lehman Brothers Holdings Inc. analysts said in a report today that an accounting change may force Fannie Mae to add $46 billion of capital and Freddie Mac to add $29 billion. Speculation that the companies may need to make further writedowns also weighed on the stock, said John Tierney, a credit strategist at Deutsche Bank AG in New York. "

The sound and fury is over FAS 140, the new rule that should have never been necessary.

Why not?  Because that rule is the one which will (if implemented) force most SIVs and other off-balance sheet horsecrap back on the balance sheets of the issuers, thereby forcing them to hold capital against those so-called "assets" and their actual risk.

These two firms between them have some four trillion dollars off their balance sheets in credit book!

The outrage is that this sort of ENRONesque behavior was permitted in the first place.  Now we find out what the real "value" of these firms is when suddenly they face the potential of having to raise capital to support the so-called "credit quality" (or lack thereof) that is underlying these "assets".

And that, when the market woke up to it yesterday at about 10:45, was responsible for twenty five handles on the SPX - straight down like a base jump.

Oh, and there are rumors of all sorts of other problems with Freddie and Fannie too.  Problems that I have spoken of repeatedly and yet which nobody IN CONGRESS, once again, wants to deal with.

Gee, is this news?  Oh hell no; how many times have I talked about Fannie and Freddie's book of business and the capital they have behind it? 

Yet despite these Tickers being faxed to CONgress, we have bills like Dodd's that will layer MORE risk onto these companies?

This crap has to stop right now!

You cannot have less than one percent of your credit risk in capital and have "it all be ok", nor can you base an "its all ok" claim on stuffing your credit risk off-balance-sheet and pretending that it has magically disappeared.

If that risk can "come home" then a mere one percent actual loss in that book wipes out your capital, and a two percent loss puts you so deeply underwater that you drown!

ONE PERCENT folks!  A ONE PERCENT LOSS is enough to kill a firm in this sort of condition, and the only way they avoid it is by playing accounting tricks!

What sort of accounting tricks?  Oh, that's not hard to figure out!  Go look at the amounts that the mortgage insurers have written in insurance to the GSEs. 

Now compare that with their capital and ability to pay.  Notice anything that smells funny?  The stock market does - check out the share price of all of these firms over the last year, not the least of which is the appropriately-named "PMI".

What happens when these firms are forced to cough up on their "insurance" and don't have the money?

Now given the amount of capital these firms have and the amount of insurance outstanding, can someone please tell me how in the hell these firms can possibly make good on the claims that they are likely to get saddled with?

Is this any different than the "swap" market problem that UBS might have and which was detailed yesterday in The Ticker?  Hell no!  Its the same damn game - Fannie and Freddie have most of their credit book "off balance sheet" which leaves them able to NOT be forced to reserve against the risk of these insurers being unable to pay!

This morning OFHEO's chief, Lockhart, was on CNBC saying that he didn't see why this change, if it came into force, would change what Fannie and Freddie need to hold in capital.

Well that's true, but misleading - it shouldn't change a thing because these sorts of off-balance sheet games shouldn't be allowed in the first place!

This whole game is outrageous.  Its insane.  Its doubly-insane when these are the firms that are supposed to provide liquidity in our mortgage markets. 

This ought to be criminal if it isn't, and the people involved in intentionally allowing this state of affairs to exist - CONGRESS - need to be held to account.

If you want more, how about IndyMac Bank (IMB)?  Halted yesterday, and then a "letter to stakeholders" comes out that essentially says "we're screwed" - they're laying off half their people, say they can't profitably fund loans, it sounds like they're bleeding from their servicing portfolio and in addition they haven't been able to raise capital (like this is a surprise?)

It gets better.  The referenced press release says this:

"As a result of the above, we have made the difficult decision, effective July 7, 2008, that we will no longer accept any new loan submissions or rate locks in our retail and wholesale forward mortgage lending channels, except for our servicing retention channel. We plan to honor all of our existing rate-locked loans and will continue to fund these loans in the coming weeks."

But is that highlighted piece "strictly true"?  One of the users in the forum called that into question last evening.... read for yourself, then decide whether Indymac's management is being straight with investors and other stakeholders.

If they can't manage to shrink their balance sheet and improve capital ratios......

How did this happen? 

Do you really mean to tell me that our Congress and other "housing advocates" pumping the idea that people making $8/hour cutting hair should be buying $500,000 houses is dumb?  That houses in California, where most of IndyMac's exposure is, really can't sell for 8-10x incomes? That houses must come down in price so they are affordable, and until they do, the defaults will continue?

There is a whole list of other institutions in the same boat as these guys. 

Just look for the ones that have major exposure in California.  All of them.

Bernanke took to the stage this morning to plead his case for having more of a say in the financial markets. 

How about if, before The Fed gets more power, Ben first demonstrates that he can competently regulate that which he already has authority over - you know, like for instance those mortgage lenders who fall under Fed Regulations?  Bernanke's Fed presided over the worst parts of the Housing Bubble and did nothing to reign in the banks that were making toxic negative-amortization loans, and in fact to this day he has done nothing to force recognition of the fact that large amounts of the "capitalized interest" that has been reported as "earnings" and is currently carried on these lender's books is not and never will be collectible.

Congress - listen up.  This entire mess is the outcome of your actions and inactions in your refusal to police these institutions and their regulators over the last ten years, including but not limited to OFHEO and The Fed.

Since this mortgage paper and these homes are declining assets the longer you wait to get off your butts and stop acting like vapid spoiled brats who got caught with your hands in the cookie jar, trying to pay off the bribes, er, campaign contributions from the financial institutions and builders with bailout proposals and other similar displays of lunacy, the worse it will get for everyone in America.