Hedge accounting is infamous as a fertile territory for accounting fraud. We found that a very large Midwest savings and loan was claiming that speculative investments that suffered large losses were "hedges." The accounting abuse hid the S&L's insolvency. In 2003, the SEC found that Fannie and Freddie had engaged in accounting abuse of purported hedges for the purpose of manipulating reported income so that the senior managers could maximize their bonuses. The Department of Justice failed to prosecute and the new senior managers continued to engage in accounting fraud until their frauds destroyed Fannie and Freddie. There are excellent reasons to investigate losses involving asserted hedges – and the problem is the Justice Department's failure to prosecute such accounting frauds. A prosecution in 2004 might well have prevented the failures of Fannie and Freddie and prevented hundreds of billions of dollars of losses.