Knife the Mac

Gregory Parseghian didn't even have time to warm up the chair in the chief executive's office at Freddie Mac (NYSE: FRE  ) . After only two months on the job, Parseghian received word from Freddie Mac's board of directors that federal regulators had demanded he step down. As of Friday night, Freddie Mac insisted that Parseghian's job was secure, but by Saturday it had changed its story once again -- telling Parseghian not to get too comfortable, because he was now officially a temp.

All of this intrigue and the changing relationships and stories make me wonder whether we're talking about Freddie Mac -- or Fleetwood Mac.

The government board that oversees Freddie Mac and Fannie Mae (NYSE: FNM  ) , the Office of Federal Housing Enterprise Oversight (OFHEO), had remained deeply critical of Freddie Mac's decision to put Parseghian in the CEO's office. He replaced former CEO Leland Brendsel after the company announced that it would need to restate earnings due to accounting irregularities. The scandal centered on decisions made among management to smooth earnings out by using buckets to delay recognition of some income, so that the company could use these earnings later when the company needed them.

OFHEO's report on the scandal, released in July, noted that Parseghian, in his previous role as chief investment officer, was a key participant in the decisions to authorize strategies to save earnings for rainy days. As a federally chartered institution, Freddie Mac is essentially compelled to accede to the wishes of its regulators. It delayed its sale of $1 billion in notes that was to take place on Friday, stating that it wanted to give the market the opportunity to digest the changes being made in management.

My cynicism forces me to point out that Freddie Mac and Fannie Mae are, by dint of the market's assumption that they are backed by the full faith and credit of the U.S. government, essentially in monopoly positions.

That what has transpired at Freddie Mac falls well below the level of fraud at other companies should not be in question. They were not creating fictitious revenues.

But given that both Freddie Mac and Fannie Mae have substantially lower levels of disclosure required of them, it's terrifying that OFHEO (has there ever been a less memory-friendly acronym?) is only responding now to what has certainly been a serial effort to mask Freddie Mac's true performance.

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