True cost of Fannie/Freddie bailout more than twice Obama administration claim

posted at 12:10 pm on June 6, 2011 by Ed Morrissey

The CBO has a problem with the Office of Management and Budget’s calculation on the cost of the Fannie Mae/Freddie Mac bailouts, and it’s no small calculation error.  OMB has calculated the costs of the bailout at $130 billion, a number repeated on occasion by the Obama administration.  By the CBO’s calculation, the cost of the bailouts reaches $317 billion, more than twice the White House estimate:

In a report delivered to the House Budget Committee on June 2, the CBO said a “fair value” accounting of guaranteeing the two defunct mortgage companies – known as Government Sponsored Enterprises (GSEs) – was more than twice as high as the Office of Management and Budget had accounted for.

“Specifically, CBO treats the mortgages guaranteed each year by the two GSEs as new guarantee obligations of the federal government,” the CBO report said. “For those guarantees, CBO’s projections of budget outlays equal the estimated federal subsidies inherent in the commitments at the time they are made.”

“In contrast, the Administration’s Office of Management and Budget continues to treat Fannie Mae and Freddie Mac as nongovernmental entities for budgetary purposes, and thus outside the budget,” the report stated. “It records as outlays the amount of the net cash payments provided by the Treasury to the GSEs.”

The total of those cash payments is $130 billion, and is normally reported as the cost of the bailout of the GSEs to date. However, the CBO said that merely counting the cash payments, and not the cost of federal subsidies granted to the GSEs, obscures their real costs.

Essentially, the CBO is accounting for the cost of the federal government guaranteeing the loans bought and securitized by the GSEs.

In other words, the difference between the two estimates seems to be the status of the GSEs themselves.  Had the federal government divested Fannie and Freddie by now, we would not be in the position of guaranteeing their ongoing loans.  As CNS news notes, though, the federal government continues to issue explicit guarantees on Fannie and Freddie, allowing them to borrow at a lower rate.  The CBO counts those obligations as part of the risk and potential cost assumed by the bailouts, along with the more recent mortgage guarantees issued by the two GSEs.

The calculation is then rather simple.  The GSEs have a fair-value deficit between assets and liabilities that total to $187 billion.  Combined with the $130 billion in cash infusions given by the federal government to Fannie and Freddie, the taxpayer is on the hook now for $317 billion.  The CBO predicts that the liability will increase each year by slightly more than $4 billion over the next ten years as well.

Taxpayers might have to eat it all in the near term in order to shed the liabilities.  If Congress gets around to ending the government guarantees for Fannie and Freddie, it will almost certainly have to resolve the deficit.  That is why the CBO calculation is so important, and likely why Congress and the White House avoided addressing the issue in 2009 and 2010.

Breaking on Hot Air

Blowback

Note from Hot Air management: This section is for comments from Hot Air's community of registered readers. Please don't assume that Hot Air management agrees with or otherwise endorses any particular comment just because we let it stand. A reminder: Anyone who fails to comply with our terms of use may lose their posting privilege.

Trackbacks/Pings

Trackback URL

Comments

Taxpayers might have to eat it all in the near term in order to shed the liabilities.

“Someone is going to have to give up a piece of their pie so that someone else can have more.” ~ Michelle Obama

I don’t want to eat Michelle’s pie.

Roy Rogers on June 6, 2011 at 12:13 PM

BushMcChimpyHalliburtonCo!!!!

csdeven on June 6, 2011 at 12:15 PM

Obamath:

1 X 2 = 1

fogw on June 6, 2011 at 12:16 PM

Claim = Lie

Unexpedly = Lie that was uncovered but won’t be covered

This Regime has no shame, patriotism or clue

KZnextzone on June 6, 2011 at 12:16 PM

Well blow my over with a feather! bho and team lying with all the fuzzy math? Gads we taxpayers get the shaft daily from dc don’t we? I bet freddie and fannie big whigs get their bonuses, millions as they usually do, won’t they?
L

letget on June 6, 2011 at 12:16 PM

Count it!

Mike Honcho on June 6, 2011 at 12:17 PM

Hey. At least Barney Frank got his boyfriend a job.
That’s all that counts.

Badger40 on June 6, 2011 at 12:18 PM

If Congress gets around to ending the government guarantees for Fannie and Freddie, it will almost certainly have to resolve the deficit.

Will never happen.
It is for the same reason no one really wants to tackle entitlement reform.

Badger40 on June 6, 2011 at 12:20 PM

“In contrast, the Administration’s Office of Management and Budget continues to treat Fannie Mae and Freddie Mac as nongovernmental entities for budgetary purposes, and thus outside the budget,”…

Kind of like food and gas prices when calculationg the rate of inflation…

… Oh, wait!

Seven Percent Solution on June 6, 2011 at 12:20 PM

Pushing banks to extend credit to low income renter really worked. /s

Actually, there were other factors that also contributed this bubble, however the main reasons were 1) Government pusshing low income homeownership 2) Fannie and Freddie purchasing sub prime bonds to encourage homeownership for people that didn’t need to buy.

There was also some crony captialsim (Greenspan and Bernake), not true market capitialism that also had factors, but was low income rules that relaxed the mortgage industry. I heard this arguement in 2007!

Oil Can on June 6, 2011 at 12:20 PM

Obamath:

1 X 2 = 1

fogw on June 6, 2011 at 12:16 PM

or it =3, 25 or 1 trillion.
It’s whatever he makes up on the fly.

Badger40 on June 6, 2011 at 12:21 PM

Count it!

Mike Honcho crr6 on June 6, 2011 at 12:17 PM

fossten on June 6, 2011 at 12:21 PM

Another troll-free thread.

mankai on June 6, 2011 at 12:22 PM

I don’t want to eat Michelle’s pie.

Roy Rogers on June 6, 2011 at 12:13 PM

Dude…

… the visual alone is making me sick.

Seven Percent Solution on June 6, 2011 at 12:23 PM

Hey. At least Barney Frank got his boyfriend a job.
That’s all that counts.

Badger40 on June 6, 2011 at 12:18 PM

Rahm Emanuel’s profitable stint at mortgage giant

Roy Rogers on June 6, 2011 at 12:24 PM

UNEXPECTED!

Eren on June 6, 2011 at 12:25 PM

***facepalm***

What a freaking disaster.

rockmom on June 6, 2011 at 12:25 PM

Oh, those pesky liabilities. Do we *really* have to count those?

Aren’t these the same nice people that gave us the mark-to-market rules?

TexasDan on June 6, 2011 at 12:26 PM

Get OUR government out of the lending business. They SUCK at it!

golfmann on June 6, 2011 at 12:26 PM

And as fun as eating $317 billion we get to have our home values plummet, good times.

Cindy Munford on June 6, 2011 at 12:28 PM

Double the Fresh mint. Double the fun.

portlandon on June 6, 2011 at 12:30 PM

Wind them down

Canadian Imperialist Running Dog on June 6, 2011 at 12:32 PM

I don’t want to eat Michelle’s pie.

Roy Rogers on June 6, 2011 at 12:13 PM

She doesn’t want you to eat her pie. She wants you to send her all of your dough.

fogw on June 6, 2011 at 12:32 PM

The number cannot even be calculated – the bailout is ongoing as we speak.

Vashta.Nerada on June 6, 2011 at 12:34 PM

Give Obowma some credit…

… he is working real hard on his golf game.

/

Seven Percent Solution on June 6, 2011 at 12:37 PM

“Someone is going to have to give up a piece of their pie so that someone else can have more.” ~ Michelle Obama

I don’t want to eat Michelle’s pie.

Roy Rogers on June 6, 2011 at 12:13 PM

Hello Huey.

slickwillie2001 on June 6, 2011 at 12:44 PM

The calculation is then rather simple. The GSEs have a fair-value deficit between assets and liabilities that total to $187 billion.

Obama: Liabilities? I am not liable for anything!

Steve Z on June 6, 2011 at 12:44 PM

Obama is to big to fail…

equanimous on June 6, 2011 at 12:46 PM

The bailouts will continue, because F&F have not been fixed. The organization serves as a vehicle for the progs’ social re-engineering, and as a honeypot for democratics that need a lucrative sinecure for a few years.

slickwillie2001 on June 6, 2011 at 12:46 PM

Get OUR government out of the lending business the post office, Amtrak, the car business, agriculture, Medicare, Medicaid and Social Security. They SUCK at it!

golfmann on June 6, 2011 at 12:26 PM

Added for clarity of the suckiness of the Government. Did I leave anyone out?

Knucklehead on June 6, 2011 at 12:50 PM

Hmmmm, let’s see. The Obama administration vastly understates the cost of the GM and Chrysler taxpayer bailouts, the Obama administration vastly understates the cost of the Fannie Mae/Freddie Mac taxpayer bailouts . . . .

Anybody starting to detect a theme?

AZCoyote on June 6, 2011 at 12:58 PM

the Administration’s Office of Management and Budget …..

nuff said

cmsinaz on June 6, 2011 at 1:15 PM

That is why the CBO calculation is so important, and likely why Congress and the White House avoided addressing the issue in 2009 and 2010.

“Most Transparent, Honest and Open Administration, evah!”

GarandFan on June 6, 2011 at 1:18 PM

Obamathmatics

katablog.com on June 6, 2011 at 1:21 PM

math is fun

katablog.com on June 6, 2011 at 1:24 PM

The WH is going to say these guarantees are Contingent Liabilities that don’t require actual payments unless the loans default. Regardless, treating those liabilities as off balance sheet items is fraudulent and would get you jail time if done at a private company.

It’s not much different than if you were to buy a company and hid a major pending lawsuit from your investors.

RadClown on June 6, 2011 at 1:29 PM

All these numbers give me (and I suspect, a lot of others, too) a headache.

Can anybody honestly say we’ve reached the bottom of the toxic assets problem yet?

Sir Napsalot on June 6, 2011 at 1:46 PM

Who controls the people that are in control?

docflash on June 6, 2011 at 1:50 PM

Hmmmm, let’s see. The Obama administration vastly understates the cost of the GM and Chrysler taxpayer bailouts, the Obama administration vastly understates the cost of the Fannie Mae/Freddie Mac taxpayer bailouts . . . .

Anybody starting to detect a theme?

AZCoyote on June 6, 2011 at 12:58 PM

You left off Obamacare. And if they could have passed it, cap & trade. Both hugely underestimated costs.

iurockhead on June 6, 2011 at 1:58 PM

The regime of plausible lies.

Kissmygrits on June 6, 2011 at 2:11 PM

Obamath:

1 X 2 = 1 JUST SHUT THE HELL UP ABOUT IT!!!

fogw on June 6, 2011 at 12:16 PM

Closer to the truth.

BigWyo on June 6, 2011 at 2:35 PM

“Someone is going to have to give up a piece of their pie so that someone else can have more.” ~ Michelle Obama

I don’t want to eat Michelle’s pie.

Roy Rogers on June 6, 2011 at 12:13 PM

Michelle Obama? Reckon that would be tamale pie.

ziggyville on June 6, 2011 at 2:56 PM

I don’t want to eat Michelle’s pie.

Roy Rogers on June 6, 2011 at 12:13 PM

She doesn’t want you to eat her pie. (And she’d probably tackle you if you tried).

She wants to take your pie and pass it out to those she finds more deserving (after taking a big bite for herself first, of course. Somebody has to pay for her multi-thousand-dollar designer dresses, after all. And those fugly shoes that decorate her enormous feet don’t come cheap either.)

Some animals are more equal than others, you know.

AZCoyote on June 6, 2011 at 3:16 PM

This is why I’m planting vegetables in my backyard.

RebeccaH on June 6, 2011 at 5:11 PM

And of course we all know that both numbers are wrong. The OMB number is just an O’Bonehead administration lie; the CBO number is more a classic government underestimate.

The inescapable truth is that it will be more.

Jaibones on June 6, 2011 at 6:26 PM

Can we get Bawney and Dodd to pick up the tab?

dogsoldier on June 6, 2011 at 6:43 PM

Jaibones on June 6, 2011 at 6:26 PM

Political Statistics. It occurred to me the numbers will never be accurate.

dogsoldier on June 6, 2011 at 6:44 PM