This is the headline that Jonathan Weil used in his article in Bloomberg. You must read the full article. Here is a summary: Freddie had accumulated $ 34.3 billion (yes Billion) of paper losses, but excluded them from calculation of regulatory capital.

All Freddie had to do was say the losses were “temporary” and they could be kept out of the company’s capital figure which was $ 37.1 billion as of June.

Fannie, with $47 bn of regulatory capital, played the same game. It had accumulated “temporary” loss of $ 11.2 bn!

Freddie’s auditor, PricewaterhouseCoopers, could have stopped it. Well they did not. The auditor for Fannie was Deloitte and Touche.

James Lockhart, the director of the Federal Housing Finance Agency, kept telling the public that both these organisations were adequately capitalized. All the while, Ben Bernanke and Hank Paulson offerred the same warm assurances about the companies capital.

I guess the market knew better – look at the share prices of Freddie, Fannie or Lehman. So it does not matter whether it is SEC, FED or S&P with all its great, qualified people – it is just wanting to help friends. However the simple Jack, Joe or Bill on the street sees and recognises shit far, earlier.

Only problem is the use of Bazookas and the fact that some of these “educated” people who stop short sales by creating unnecessary hurdles for the market to function!