Tag: Fannie Mae

The Definition of Insanity

Is government housing policy:

Recent steps by federal regulators make it clear: low down-payment loans, a feature of the housing market’s boom, are coming back.

On Monday, Federal Housing Finance Agency Director Mel Watt announced that mortgage-finance companies Fannie Mae and Freddie Mac would start backing loans with down payments as low as 3%.

And on Tuesday, three federal agencies approved a loosened set of mortgage-lending rules, removing a requirement for a 20% down payment for a class of high-quality loan known as a “qualified residential mortgage.”

Loans with little to no down payment were a common feature of the lax lending practices that were prevalent during the housing market’s bubble years.

Yes, my friends. Not content with easy mortgages wrecking the economy and destroying what little wealth the poor and middle class had accumulated, our government is back for more.

Why on Earth would they want to do this? McArdle:

Because, I think, most of us still haven’t managed to shed the idea that buying a house is a good way to get some unearned bonus wealth. Too many people managed to do just that for too many years. We think of 2008 as an aberration, rather than reversion to the mean. And that’s a costly mental error.

The long, steep increase in American home prices from 1946 to 2008 was driven by a whole lot of trends that are hard to repeat: the invention of the 30-year, fixed-rate, self-amortizing mortgage, which allowed people to pay more for a house by lowering the monthly payments. The securitization revolution, which lowered mortgage risk by bundling the loans into large, diversified portfolios, thereby lowering rates. Rising inflation, which pushed up the price of houses. Falling inflation, which lowered interest rates and monthly payments still further and allowed people to pay even more for those houses. The credit-scoring revolution, which allowed banks to offer loans to more people, increasing demand for the existing housing stock. And in dense coastal areas, you also had the rise of NIMBY zoning laws, which made housing scarcer and therefore more expensive.

The problem is, these things have already happened. Most of them cannot happen again — interest rates can’t really go much lower.

Out government is consumed with the idea that home ownership is the path to wealth for the poor and lower middle class. But nothing could be further from the truth, as the last decade proved. The housing bubble hurt the wealthy … a bit. But it completely burned what little wealth existed in the lower quintiles of our society.

The reason is that houses aren’t a great investment. They’re a good investment … if you have a stable income and employment situation and can manage money well. They’re a stable investment … if you have some equity. But people are besotted with idea of real estate as the gate to wealth.

Low down-payment loans are especially dangerous for people trying to climb the economic ladder. They can allow people to make a quicker entry into housing. The danger, however, is that a house with low equity is a highly leveraged investment. If you make a down payment of 3% and housing prices fall 3%, 100% of your equity goes up in smoke. The reason so many people ended up in underwater mortgages with negative wealth was because they had such a thin margin of equity.

But … they never learn. This will happen again and they still won’t learn. The people running our government and their cheerleaders in places like the Center for American Regress will continue to believe that there is a alchemical formula for creating middle-class wealth out of thin air. I guess you have to believe in something when you think that businesses don’t create jobs.

The “Do Nothing” Congress Cuts Both Ways

We’ve been hearing for the last couple of years that the Republican congress won’t do anything (with “do anything” defined as “unilaterally cave in to the President’s entire agenda”). But doing nothing cuts both ways. It’s not like the Democrats are proposing a raft of great laws that would save our country. And in many cases, they are opposing them for stupid reasons:

A high-profile Senate bill that would dismantle Fannie Mae and Freddie Mac suffered a blow this week when key Democrats decided not to support the legislation, likely wiping out its chances of advancing to the floor this year.

The bill has enough votes to pass the Senate Banking Committee, which plans to consider the measure next week. But the bill’s sponsors — Sens. Tim Johnson (D-S.D.) and Mike Crapo ­(R-Idaho) — failed to win over the committee’s liberal Democrats and secure a larger majority.

Without more support, Majority Leader Harry M. Reid (D-Nev.) is unlikely to move the measure to the full chamber, and its chances of gaining traction next year are unclear. The setback comes despite bipartisan support for the bill on the committee and suggests that the effort to revamp the nation’s housing finance system could stretch on for years.

The bill would gradually unwind these two behemoths and shift the risk back to the private sector, where it belongs. This has run into a firestorm of opposition from groups that want the GSE’s to loan more money to low-income groups as well as people who want to re-inflate the mortgage market and the derivatives market.

The liberal intelligentsia had been desperately trying to pretend that Fannie and Freddie — who controlled the lion’s share of the imploded mortgage market — had nothing to do with the financial crisis. They are wrong about this, cherry-picking the data that support their cause. But they are wrong on a more fundamental level as well.

The fundamental error is that encouraging poor people to buy houses is a bad thing. Not just bad for the economy, not just bad for the markets, not just bad for any of the reasons usually cited. It is bad for poor people. Buying a house for anyone is a marginal investment at best, unless it comes with a lot of land. I bought my house because I value the things that come with home ownership — stability, responsibility, possession — and because it is a form of forced savings. I also have a good credit rating so my loan was cheap. But unless you’re investing in rental properties, a home is a solid investment, not a great one. And it’s a terrible investment if you have poor credit, move a lot, have a shaky job situation or aren’t very good with money — traits that are very common among the poor.

Look at what happened during the financial crisis. Thanks to efforts to get the poor to buy houses, they had almost all of their wealth tied up in housing. When the bubble popped, it destroyed what little wealth the poor had:

The chart above splits U.S. homeowners into net-worth quintiles, and plots housing as a fraction of all assets for each quintile in 2007. For the poorest homeowners, houses were by far the most important thing they owned going into the Great Recession, making up almost 80 percent of their total assets. Another way of saying this is that the poor held very few financial assets such as stocks, bonds or mutual funds. On the other hand, housing was a much smaller part of the overall asset portfolios of the richest households — less than 20 percent.

So the poor were much more vulnerable to a crash in housing prices in 2007 than the rich were. In fact, it was even worse for the poor because they used so much debt to purchase their homes. Above, we also plot mortgage balance as a fraction of home value in 2007 for each of the net-worth quintiles. For example, if a household owned a home worth $100,000 and had a mortgage of $80,000, then the household would have a mortgage balance that was 80 percent of the home’s value.

Leverage can be a very dangerous thing for borrowers when their home values plummet. Continuing the example above, if someone has a $80,000 mortgage on a $100,000 home, and the home drops in value by 20 percent to $80,000, then the homeowner loses $20,000, or 100 percent of their equity in the home. Home prices fell 20 percent, but the homeowner lost 100 percent. That’s the effect of leverage!

The so-called “ownership society” encouraged this behavior under the belief that housing was a magical money maker that would turn poor people into rich people. Rich people own homes; therefore owning homes must make your rich. But it doesn’t and it never will. Owning a house is not a path to sudden riches. It is, at best, a sound investment if you have the means, the stability and the discipline.

Not that Fannie and Freddie have learned from their experiment in sucking away what little wealth the poor have. Just today, the overseer of the GSE’s announced that he wants to expand their role in the markets, to encourage people to buy houses and to not lower the caps on their mortgages. This is being done to “stimulate the economy”. But we’ve been down this road before. The only things that got stimulated were Wall Street crooks and mortgage sharks. Everyone else ended up getting “stimulated” right up the keister.

Enough. End this madness. End the GSE’s. Let’s not go down that road again thinking that this time, it will be different. If the President and his sycophantic media want Congress to “do something” I suggest they start right here with a bi-partisan effort to finally end this failed experiment.

Winding Down the FM’s

Gee, it only took him five years to get where everybody else was:

[President Obama] proposed to “wind down” Fannie Mae and Freddie Mac, for the first time outlining his approach to overhauling the two giant mortgage-finance companies that were taken over by the government when they failed nearly five years ago. The companies, which Mr. Obama described in an appearance here as “not really government, but not really private sector,” recently began to repay taxpayers.

Since early 2011, the administration has voiced support for overhauling Fannie Mae and Freddie Mac, which long benefited from an implicit government guarantee. Years ago the companies came to symbolize a self-dealing Washington culture beneficial to both parties, and especially Democrats, but Mr. Obama’s remarks on what comes next were his most specific. For several years, the administration held back from revamping the mortgage-finance system for fear of rattling a weakened market.

Mr. Obama on Tuesday endorsed the thrust of bipartisan legislation from a Senate group that would “end Fannie and Freddie as we know them.” The so-called government-sponsored enterprises for decades bought and sold mortgages from financial institutions to provide money for the banks to keep lending to home buyers.

Under Mr. Obama’s principles, which he said were reflected in the Senate bill taking shape, Fannie Mae and Freddie Mac would further shrink their portfolios and lose the implicit guarantee of a federal government bailout. Instead, private investors would be most at risk, with the government a secondary guarantor.

I would prefer to do away with them all together, but shrinking them and ditching the government guarantee would be a good first step.

Still, it’s worth pointing out that conservatives and libertarians were mocked and jeered for years when they called for precisely this policy. In fact, we were branded as economic idiots when we called for reforming the GSE’s before the financial crisis hit. I guess acknowledging the deep problems created by the GSE’s is OK now that Democrat is doing it.

FM and FM Reloaded

A couple off weeks ago, the SEC indicted a number of executives from Fannie Mae and Freddie Mac for fraud. A detailed look at the indictment is here. Money quote is a long one, but I think you have to read it:

The SEC’s complaint against the former Fannie Mae executives alleges that, when Fannie Mae began reporting its exposure to subprime loans in 2007, it broadly described the loans as those “made to borrowers with weaker credit histories,” and then reported — with the knowledge, support, and approval of Mudd, Dallavecchia, and Lund — less than one-tenth of its loans that met that description. Fannie Mae reported that its 2006 year-end Single Family exposure to subprime loans was just 0.2 percent, or approximately $4.8 billion, of its Single Family loan portfolio. Investors were not told that in calculating the Company’s reported exposure to subprime loans, Fannie Mae did not include loan products specifically targeted by Fannie Mae towards borrowers with weaker credit histories, including more than $43 billion of Expanded Approval, or “EA” loans.

Fannie Mae’s executives also knew and approved of the decision to underreport Fannie Mae’s Alt-A loan exposure, the SEC alleged. Fannie Mae disclosed that its March 31, 2007 exposure to Alt-A loans was 11 percent of its portfolio of Single Family loans. In reality, Fannie Mae’s Alt-A exposure at that time was approximately 18 percent of its Single Family loan holdings.

The misleading disclosures were made as Fannie Mae’s executives were seeking to increase the Company’s market share through increased purchases of subprime and Alt-A loans, and gave false comfort to investors about the extent of Fannie Mae’s exposure to high-risk loans, the SEC alleged.

In the complaint against the former Freddie Mac executives, the SEC alleged that they and Freddie Mac led investors to believe that the firm used a broad definition of subprime loans and was disclosing all of its Single-Family subprime loan exposure. Syron and Cook reinforced the misleading perception when they each publicly proclaimed that the Single Family business had “basically no subprime exposure.” Unbeknown to investors, as of December 31, 2006, Freddie Mac’s Single Family business was exposed to approximately $141 billion of loans internally referred to as “subprime” or “subprime like,” accounting for 10 percent of the portfolio, and grew to approximately $244 billion, or 14 percent of the portfolio, as of June 30, 2008.

There’s a handy-dandy chart included. The two GSE’s claimed they had about $14 billion in subprime exposure. The SEC is alleging that the actual exposure was $360 billion. I know this must be shocking to the Left. We all know that government and its supported enterprises only lie when Republicans want to start a war. But there it is in black and white.

It has become an article of faith that Fannie and Freddie did not cause the financial crisis and the allegation they did is all part of a big Republican government hating lie (read here, here and here). And, to some extent, I agree. They didn’t “cause” the problem. But those analyses were based on numbers from FM-squared that turned out to be complete and total fabrications. Now, I agree that the financial crisis had multiple and complex causes. But even Krugman will have to admit that, at the absolute minimum, the GSE’s throwing hundreds of billions into subprime mortgages was adding serious fuel to the fire. FM2 may not have caused the crisis, but they made it a hell of a lot worse. And, seriously, what planet do you have to live on to have claimed, even before this came out, that the agencies guaranteeing half of the mortgages in the country had no culpability for the bubble?

But here’s the thing: let’s allow that FM2 were more of a “me-too” player, coming late to the subprime party. When you think about it, that’s almost worse. They couldn’t even time a bubble properly. They were the last sucker in the ponzi pyramid that was our national housing market. They gambled hundreds of billions — a bet the taxpayers ended up having to stand for — at the worst possible time. And saps like Krugman think they’re a model for healthcare?

And even if you don’t blame FM2 for the financial crisis, we can blame them for over a hundred billion in bailouts. We can blame them for paying for $100 million in executive salaries. We can blame them for lying their asses off by a factor of 25 in how exposed they were.

This isn’t a little deal. As Joe Biden would say, this is a Big Fucking Deal. But do you see the media screaming about it? Do you see a tenth of the outrage we see when some Wall Street asshole gets a $10 million golden parachute? Do you see all the FM2 defenders acknowledging that they were lied to? FM2 lost tens of billion of our money trying to buy into housing right before it collapsed. Shouldn’t that piss off someone on the Left?

Blow the Houses Up

This is the first of two posts, one on housing, one on banking. I’ll post the second one shortly.

Just when you thought it was safe to get back into the financial waters our dumbass government decides to resurrect the housing bubble — or at least try to.

First, there is the effort to maintain the high limit on conforming loans — that is, the loans that Fannie/Freddie will backstop. The upper limit on these loans recently declined from $730k to $625k (preferably on its eventual road to $0). But the Senate has passed an extension of the high limit under the apparent impression that poor people need the lower interest rates that come with conforming loans to buy their million dollar homes. Fortunately, the House is less keen on this idea.

And yet, it only gets better! Here comes Johnny Isakson (R-Real Estate Industry) with the SAVE Act. What the hell is the SAVE Act? I’m glad you asked.

The SAVE Act would require lenders to take into account, when underwriting the loan, potential savings from various energy savings features of the house. If a new appliance reduced your electric bill, Congress would require that the lender allow that ”savings” to used to bid for a higher priced house. The impact of the bill would be to allow for even higher debt-to-income ratios on the part of borrowers, as if high mortgage to income payments has had nothing to do with the mortgage crisis we are in.

Perhaps worse the bill would also direct appraisers to include energy savings into the value of the house. Sadly this is anything but “sensible accounting”. As any decent appraiser knows, a house is worth what someone will pay for it, not what the value of various improvements are. That’s why most residential appraisals are based upon comparable sales, and not simple cost or revenue accounting (marginal theory of value, anyone?).

My desk has a dent from me banging my head on it every time I read these stories. Is this not what got us into this mess? Complicated loans that no one understood that were predicated on the idea that housing prices would go up? Now we’re getting complicated loans that no one understands predicated on the idea that “green technology” will make houses more valuable. My developer in Texas trumpeted green building methods. It was nice but it didn’t make us pay more for the house. My current house is about as green as a black steer’s tuckus on a moonless prairie night, but I still bought it because the neighborhood was perfect. If green housing is worth more to buyers, the market will tell us.

No one in Congress is qualified to run the housing market. They need to stop pretending they can before they fuck things up even further.

Back to the Well

Just remember: according to the likes of Paul Krugman, Fannnie and Freddie had nothing to do with the financial crisis:

Mortgage finance giant Fannie Mae said it would ask for an additional $5.1 billion from taxpayers as a weaker housing market causes continued losses on loans made prior to 2009.

Since the firm was seized by the U.S. Treasury in 2008, it has needed about $104 billion in government capital injections, although it has paid back about $14.7 billion in dividends.

Freddie and Frannie combined are about $143 billion in the hole to the taxpayers. Like the government funding them, they are assuring thus that everything will be just fine in a decade or so. But they’re losing money today, so…

It’s amazing that with all the deserved bile thrown at the banks, there are still those who hold back on the socialized monstrosities, run by and for political hacks. Or … maybe it doesn’t.

Ain’t that a bitch?

Guess who so far has ended up being the biggest beneficiary of the Dodd-Frank financial regulation law? For those of you not familiar with Dodd and Frank, here is some background. Chris Dodd was a senator from my state, Connecticut, and one of the instrumental people behind the previous laws and government push to force lending to high risk people in his political career, ending up as the banking committee chairman (better to rob us blind!) right at the time the crisis happened. His meddling, in the name of “social justice”, but always while larding his friends and donors with government largesse, made him an instrumental player in setting the stage for the practices that led to first the housing and the following economic collapse back in 2007/2008. Dodd also was the guy that put regulation in the “must have” bailout plan to protect the big wigs and their bonuses at AIG. He was mired in one scandal after another, and basically decided not run for reelection in 2010, opting instead IMO to go steal people’s money doing something else.

Barney Frank, is a representative from Massachusetts. In addition to having the distinction as the only congress critter that dated a guy that run gay prostitution ring from their shared residence, he was also the head architect behind the scandalous and criminal repackaging of high risk loans, to make them palatable, through the government owned and run, but mysteriously categorized as private sector entities, Freddie Mac/Fannie Mae, and a key player in protecting Freddie & Fannie from any serious scrutiny – another one of his lovers was put in charge of running one of those – by accusing those pointing out the problem of being racists, until the whole house of cards came tumbling down.

As a reward for their roles in the horrible crisis and economic collapse it cause, these two where allowed, well they demanded, to be given the reigns of power, to produce the new series of regulations which they told us would prevent another crisis like the one their previous involvement caused. As expected, they didn’t do anything to end either the idiotic practice of having governments force lending institutions to give loans to high risk people looking for a loan, or to address the massive problems at Freddie/Fannie, but created a slew of regulation in a bill with over 2300 pages of bullshit, designed to allow people in government to increase their ability and power to pick which businesses would be winners and whom the losers. In return for some large donations, of course. So, don’t be surprised that the clock is already ticking on the next economic implosion, courtesy these two morons.

But back to the original question: guess how is making out real good because of the Dodd-Frank’s financial regulation law? Well, the very people involved in writing the rules then turning into evil lobbyists, of course.

It may not prevent another bailout or protect consumers from dangerous financial products, but the Dodd-Frank financial regulation law — now one year old — has already benefited one group of people: the government officials who wrote and implemented the law before cashing out as lobbyists or consultants for Wall Street, hedge funds and big banks.
The top staff lawyers in charge of crafting the legislation in both chambers of Congress have both left Capitol Hill for K Street, as has a Securities and Exchange Commission staffer who helped implement the law. This is “private-sector job creation, Obama-style,” as blogger Ira Stoll drolly notes.

The Great Wall Street Cashout is another example of how President Obama’s agenda of bigger government — and congressional Democrats’ style of leaving the key details up to executive-branch regulators — accelerates the revolving door and breeds crony capitalism.

Dodd-Frank was supposed to prevent future bailouts, tamp down on excessive risk taking by financial institutions and, through a new agency called the Consumer Financial Protection Bureau, protect regular people from predatory lenders or harmful and complex financial products.

SAY IT AIN’T SO!

Seriously. Why is this news? It’s of the “Dog bites man” variety. The very regulators engaged in writing this piece of garbage leave government, become lobbyists, and then rake in the cash? Who would have thunk that!

I can’t blame these guys for pulling this stunt, but I certainly can go off on the next leftist asshole that tells me how evil capitalism or Wall Street is. These government scumbags and their games make those guys look like pikers. Remember, Wall Street, or for that matter any other business/economic power center, can only do the things people in government write laws to make them do. We got more of the same in the healthcare takeover by government bill too. If we really wanted to curtail these kinds of bad practices, what we should have done is removed the power from government, by removing as much involvement by them from the equation. Instead we did exactly the opposite. Go figure.

The Real Scandal in Washington

As I said in the comments on Alex’s post, I’m not too opposed to the double standard that gets applied to sex scandals. Republicans get hit harder because of the hypocrisy of dictating moral values to the nation when it comes to homosexuality and abortion while they schtupp lobbyists on the side.

But I do object to the failure to call out Democrats when they engage in hypocrisy that makes David Vitter look like Pope Benedict. The Democrats bombard us with an endless stream of propaganda about how they stand up for the little guy, they stand up to special interests, they oppose big money. And they do this while selling the country down the river to those exact interests. One week they are standing up to big insurance companies by pushing healthcare reform the insurance companies love. The next, they’re standing up to energy interests by lavishing money on “green” technology pushed by powerful energy interests. You can read Alex’s post below on the debacle unfolding at Fannie and Freddie, the liberal creation that was tangled up with every monied interest around and zealously defended against re-regulation by Democrats.

And then there’s Dodd-Frank, the bill that was supposed to stick it to the big banks in favor of the little guy. This is the bill that’s going to make Elizabeth Warren everyone’s second wife, constantly nagging us about our financial choices. This is the bill that was named after two men so covered in bank lobby money, their shit comes out in coin sleeves.

So how’s that bill working out? We’ve passed it, so now we can find out what’s in it.

Behold, the sudden realization:

Dodd-Frank is so sprawling — the legislation runs to more than 2,000 pages — that the law firm Morrison & Foerster dubbed the tracker it created to monitor the implementation process “FrankNDodd.”

The law laid out principles but often left it to regulators to write the actual rules. Those would be the same regulatory agencies that failed to prevent the financial crisis and that, in some cases, view the banks they oversee, not taxpayers, as their primary constituents.

Dodd-Frank requires 387 different rules from 20 different regulatory agencies. The Byzantine, tedious rulemaking process has occasionally pitted regulator against regulator and proved a bonanza for lobbyists.

Congress set aggressive deadlines for regulators to make rules to enforce the law, and, unsurprisingly, they are failing to meet them. The agencies missed each of the 26 deadlines they were supposed to meet for April. So far, regulators have finalized 24 rules and missed deadlines on 28, according to the law firm Davis Polk.

This is not an accident. This is not the creation of evil Republican deregulators. That the rule-making is coming to be controlled by special interests is exactly what we fucking predicted would happen.

What did we expect? Between Dodd-Frank and Sarbanes-Oxley, we are getting to the point here he only way to make money is to control the politicians and the regulators. Anyone else gets screwed. They only other choice is to take your business to less stupid countries.

Well, we all know this is the fault of the evil Republicans. Certainly the Democrats don’t … oh.

Every morning, a Wall Street trade group called SIFMA sends out an email with the day’s news. SIFMA is the Securities Industry and Financial Markets Association. It represents banks and trading firms. So it’s no surprise that the email is usually heavy with critical news stories about financial reform laws, like the Dodd-Frank Act.

But tonight, SIFMA will be hosting a fundraising dinner for Democratic Congressman Barney Frank: yes, he’s the Frank in Dodd-Frank. SIFMA members will pay $1,000 or more for a seat at the table.

The Wall Street interests are also big Obama contributors.

This needs to be drilled into people’s heads: the rich and the powerful love hyper-regulation. They love it. They love it because they have the money and the influence to successfully navigate a politically-controlled landscape. All that over-regulation accomplishes is the screwing over of newcomers — those who don’t have influence yet and haven’t stuffed political war chests with their hard-earned money. The guys who brought down our financial system love Barney Frank and they love Dodd-Frank because they are protected; they have the keys to the vault (literally, in the case of bailouts).

And the politicians love it too. How else would a turd like Barney Frank get his bloated ass kissed by rich bankers? How else would Obama roll up $35,000 donations? They love having people come to Washington and genuflect before them. They love having the success of businesses and the fate of hundreds of billions of dollars turn on their whims and whimsies. This is what they live for.

The only people who lose are the average citizen, the honest businesses, the economy and the sucker lefties who continues to mindlessly support these weasels and their weasely reforms.

Things are far worse than they seem..

Yeah, that’s my new special post category, in honor of CM, which try as he might, seems to only use vague and generalized personal attacks to dispute my points, and makes the case that I am exaggerating how bad things are. Well, in honor of that I have this juicy revelation for today:

(CNSNews.com) – The Congressional Budget Office (CBO) says the real cost of the federal government guaranteeing the business of failed mortgage giants Fannie Mae and Freddie Mac is $317 billion — not the $130 billion normally claimed by the Obama administration.

That’s more than double the real risk/cost that they told us was involved here. Remember that Fannie Mae and Freddie Mac where the key instruments of the idiotic policy that forced lenders to give loans to bad risk, then guaranteed those risk at the tax payer’s expense, and pushed for the regulations to create the disastrous credit swap scheme. Neither organization, nor their role in causing this recession, was addressed by all the new regulation passed by Barney Frank and Chris Dodd, two of the key players behind the policies that allowed the shenanigans to go on. We already poured millions into these two to bail them out, and we might not be done at all, since Bloomberg predicted that the actual bailout amount for this disaster might even top a trillion dollars back when: a number I wouldn’t be surprised ends up being the low end. But back to the article in question.

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.

What this says in short is that the Keynesians have purposefully underestimated the debt they have straddled us tax payers with, because while they claim Freddie & Fannie are non governmental agencies, we the tax payers still are on the hook for their risk taking ventures, which I must again stress, remain untouched and ongoing. But don’t take my word for it: here is the CNS article:

Currently, Fannie and Freddie rely on explicit federal guarantees to continue to secure below-market financing rates. Because Fannie and Freddie are insolvent, the federal government must make up their losses when the loans they have guaranteed lose money in default.

However, the CBO counts not only the amount of federal funds spent to keep the GSEs operating but the cost to the federal government to subsidize the mortgage guarantees issued by Fannie and Freddie. In other words, the CBO counts as a federal spending commitment the subsidy given by the government to the GSEs.

And the CBO has to count that in, because our government, well we the tax payers, are responsible for those risky loans. And it gets better:

However, this subsidy cost could grow if the housing market continues to be weak. While the CBO expects it to recover, the difference between the agency’s own 2009 and 2011 estimates show that this may not be the case.

We haven’t heard the true numbers yet. Me, I wouldn’t e surprised that in the end it is closer to a trillion dollars of risky loans that will need to be written off and paid for by the tax payers, because in my personal experience the number of people that never should have been given a loan far surpasses those of us that didn’t buy more than we could afford, or worse, promptly took out 125% or more of the value of the homes they owned out to do other frivolous things.

Don’t worry though: Freddie & Fannie are in good hands. And don’t forget that we the tax payers are paying for the lawsuit by the government against the Freddie & Fannie execs too. Joy! All hail the Keynesians! Things aren’t all that bad….