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10 Sep 2008
US mortgage giants Fannie Mae and Freddie Mac's accounting rules have been branded as a 'house of cards' by a senior US Senator.
The criticism was made by Senator Richard Shelby, a Senate Banking Committee member, after a briefing by US Treasury officials, the Irish Independent said.
About half of the troubled mortgage lenders regulatory capital was made up of deferred tax credits, which could be deducted from taxes on profits.
'That's not even real money,' said Senator Shelby. 'They found out they had a house of cards.'
But the tax credits are worthless unless the companies are generating profit.
Fannie Mae and Freddie Mac have posted four consecutive quarterly net losses, totalling a combined €10.5bn (£8.4bn) and have warned of more losses in the future.
Once they got someone looking closely at Fannie and Freddie's books, they realised there just wasn't adequate capital there.
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