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Do These Numbers Make My Deficit Look Fat?

Fannie Mae and Freddie Mac, the federally backed mortgage titans, have cost US taxpayers as much as a small war.  Last summer, the CBO estimated the cost of bailing out the two agencies at $317 billion. Administration proposals to write down principal on troubled mortgages backed by the two agencies could add $100 billion or more to the cost.These are all estimates; depending on the housing market and other factors like interest rates, the costs could go up or down from here.

But don’t worry; none of that shows up on the official US budget deficit numbers.  The Wall Street Journal reports that Republicans in the House have passed a measure that would add federal expenditure on Fannie and Freddie to the federal budget:

The Congressional Budget Office has long supported bringing the companies onto the government books, accounting for their operations in the federal budget as if they were federal agencies.

But the Obama and Bush administrations have resisted doing so. When the government took over Fannie and Freddie through a legal process known as conservatorship, the Bush administration opted against incorporating the companies’ obligations into the federal budget, citing the arrangement’s “temporary nature.”

From the Via Meadia perspective, Bush and Obama are both wrong, and the CBO and House Republicans are right.

The decision to keep them off the government books despite their de facto status as federal agencies is a naked attempt to hide the cost of a controversial program. Since the beginning of his administration, President Obama has stated his desire to add transparency to the way the federal government conducts its business. Now is his chance to prove he was serious.

There is nothing to be gained by covering up our debts.  Wars, bailouts, liabilities: the federal government should produce as clear a set of books as possible.  Voters deserve accurate information about unfunded liabilities as well as the costs of current programs.

Better accounting would have made it harder for the Bush administration to cut taxes while fighting two wars, and it will now make it harder for the Obama administration to promote domestic spending increases without paying for them. Too bad: let the chips fall where they may.  Honest, no-gimmicks accounting is a necessary condition for good governance in a democratic society.  Let the people see clearly what things cost and make their decisions about what to do.

It’s time to put Fannie and Freddie where they belong: on the books.

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  • smitty

    Step up to the plate, man, and admit these things are a gross 10th Amendment violation.
    Being and apologist for idiocy like the Community Reinvestment Act makes your credibility look skinny, sir.
    We can’t make improvements until our systematic analysis calls federal over-reach what it is.

  • Kenny

    “There is nothing to be gained by covering up our debts.”

    Perhaps not for society or the average guy, but there is plenty to be gained by the ruling elites in lying about the statistics on the debt, the deficit, the ture unempolyment number, the rate of inflation.

    The benefit of these lies to the political class is that 1) it buys them time 2) it gives them the aura of competence that they don’t have, and 3) it allows them to continue to run the country.

    Face it, Mr. Mead. We have a corrupt government.

  • Nadine

    “Since the beginning of his administration, President Obama has stated his desire to add transparency to the way the federal government conducts its business.”

    Since the beginning of his administration, President Obama has spoken approvingly of a great many prudent policies that are the polar opposite of the policies he has actually followed. He approves fiscal restraint and cutting Federal spending, too — but only in word. In deed, he hiked the Federal Budget up to nearly $4 Trillion in his first budget, and has signed no budget since. He has run a deficit greater than $1 Trillion every year of his administration.

  • La Marque

    The Bush Administration may have seen this as temporary; but, the Obama Administration has no idea of what to do with them, causing them to be permanent government agencies. Bring them onto the Federal budget, the same as the foreign wars.

  • Andrew Allison

    USPS and Government Motors too! I’m a little surprised the Prof. Mead has not leapt (I assume he learnt to spell it correctly in school ;>) ) upon the Volt as another enormous green boondoggle.

  • Jacksonian Libertarian

    Some heart breaking facts:
    American home owners have now lost $7 Trillion, from the value of their homes, and values are still falling.
    A few years ago 60% of American Family net worth was held as equity in their home. It was where most of the life savings of lower and middle class Americans, who rarely invest in stocks and bonds, were held. The American Family nest egg has been wiped out.
    The primary source of small business start up and expansion capital is from the home equity of the owners.
    The vast majority of new jobs created in an economic recovery are in small businesses.
    Due to the loss of the primary funding source for small business start up and expansion, new jobs cannot be created.
    The Community Reinvestment Act “CRA” forces mortgage banks to lend in every zip code in their local area, or face large fines.
    The mortgage banks purchase bundled mortgages for those unfavorable zip codes from Fannie Mae and Freddie Mac, to shift the risk onto the US tax payer.
    30% of home owners with mortgages are upside down in their mortgage (owing more on their mortgage than their house is worth) and that is before calculating the closing costs of selling a home of 8%-10% of purchase price.
    Foreclosures continue to increase, which drives home prices lower, which forces more foreclosures

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