GSEs and Other Financial Institutions Overstate Capital Base

In an easily believable story the New York Times is reporting Loan Giant Overstated the Size of Its Capital Base.

The government’s planned takeover of Fannie Mae and Freddie Mac, expected to be announced on Sunday, came together after advisers poring over the companies’ books for the Treasury Department concluded that Freddie’s accounting methods had overstated its capital cushion, according to regulatory officials briefed on the matter.

The proposal to place both companies, which own or back $5.3 trillion in mortgages, into a government-run conservatorship also grew out of deep concern among foreign investors that the companies’ debt might not be repaid.

Investors who own the companies’ common and preferred stock wi