Friday, February 05, 2010

Barack's Budget Buries the Bills

Fannie Mae and Freddie Mac, the two largest government sponsored enterprises operating in the mortgage market, were at the heart of the housing and credit crisis. Together, according to the Congressional Budget Office (at 4), "the mortgages guaranteed or owned by Fannie Mae and Freddie Mac total approximately $5 trillion and account for almost half of all outstanding residential mortgages." And each historically has been manipulated for political purposes outside of economics.

Cleaning up will be expensive -- the CBO calculates (at 2) Fan and Fred "added $291 billion to CBO’s August 2009 baseline estimate of the federal deficit for fiscal year 2009," and will require a further $79 billion subsidy over the next decade. This is far larger than the costs for TARP's bailout of banks.

Yet, President Obama's newly proposed 2011 budget excludes Fannie and Freddie, claiming both "are private companies . . . not backed by the full faith and credit of the Federal Government." Obama's 2010 budget did the same (see CBO at 2 n.5).

That dog won't hunt. As a reminder, the GSEs always tapped taxpayers (CBO at 4):
Historically, their federal charters have allowed the two entities to borrow at interest rates lower than those paid by comparable finance companies without such a charter and close to those paid by the Treasury. Investors viewed the charters as an implicit federal guarantee of the entities’ debt obligations, despite the government’s assertions to the contrary. Reinforcing that view, Fannie Mae and Freddie Mac were subject to less onerous capital requirements than other regulated financial institutions. The lower borrowing costs enjoyed by the two entities flowed to participants in the housing market in the form of lower mortgage rates and to the entities' stockholders in the form of higher profits.
And any possible fable that Fannie and Freddie weren't Federal ended when (CBO at 6) "the Federal Housing Finance Agency placed them into conservatorship in September 2008, giving control of the entities to the federal government."

Remember when Obama promised to restore fiscal sanity? Remember when he vowed his Administration would "[r]eturn to honest budgeting . . . [because] in the past several years, budget tricks were used to make the government's books seem stronger than they actually were"? Actually, that last quote came from, so the President's still blaming Bush for his non-transparent transgressions.

Even Representative Barney Frank would abolish Fannie and Freddie. The President prefers to hide the ball. So much for "hope" and "change."

(via Maggie's Farm)


OBloodyHell said...

> The President prefers to hide the ball. So much for "hope" and "change."

Lies, Damn Lies, and, "Oh, yeah, this crap"

Carl said...