Michelle Malkin

Martha Stewart is a too-easy target, an overstuffed pink pinata swinging in the wind, waiting to be thwacked by every last critic of capitalist excess. But the stock-dumping doyenne is no match for the real mother of all brewing financial scandals. That moniker belongs to the twin behemoths Fannie Mae and Freddie Mac.

Who, you say? Unlike Martha, or the three-piece-suited villains of Enron or Tyco or WorldCom, Fannie Mae and Freddie Mac haven't been plastered all over the tabloids and prime-time TV. That's because they are faceless, government-sponsored enterprises in a complex, loosely regulated, highly leveraged monopoly business that has engaged in questionable accounting practices and put billions of taxpayer dollars at risk -- with plenty of private profiteering for company executives and Washington lobbyists, but almost zero accountability to the public.

As federally chartered "government-sponsored enterprises," the two institutions have been exempt from normal securities regulations for almost their entire lives. Analysts unable to decipher Fannie Mae and Freddie Mac's incomprehensible annual and quarterly reports have long suspected book-cooking with regard to their real cash flow. This week, the Wall Street Journal reported that Freddie Mac faces an SEC probe over possible accounting irregularities. Investigators will examine whether Freddie Mac may have deferred some income to smooth out results in future periods. The SEC will also probe the actions of the chief executive and chief financial officer, who were fired on Monday over an accounting review of earning restatements. The news sent stocks south and roiled some foreign markets as well.

Clothed in politically correct fashions ("Catch the dream," beckons Freddie Mac's program to boost minority home ownership; a "leader in diversity," brags a Fannie Mae press release), these public-private hybrids are two dangerous pigs feeding at the federal trough. Congress created Fannie Mae (nickname for the Federal National Mortgage Association) in 1938 to bolster home ownership during the Depression. Three decades later, it was partially privatized, but retained a host of government benefits. In 1970, Congress spawned Freddie Mac (nickname for the Federal Home Mortgage Corp.) to provide a lending competitor to Fannie Mae. Both entities expand the pool of money for home purchasers by snapping up loans that lenders make to homebuyers, and then converting those loans into relatively safe mortgage-backed securities that are attractive to investors.

So, what's wrong with this picture?

Michelle Malkin

Michelle Malkin is the author of "Culture of Corruption: Obama and his Team of Tax Cheats, Crooks & Cronies" (Regnery 2010).

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