Comments on: Dubious Assumptions in CBO’s Fannie, Freddie $25 Billion Rescue Cost Estimate

By: Lune

Lune — Wed, 23 Jul 2008 02:42:00 +0000

The CBO is actually a very reputable economics shop. The problem is that per their mandate, they are required to only look at what is in proposed legislation when drawing up their estimates, and not on what will actually happen in the future.

As a result, there's quite a bit of tweaking the legislation to game the CBO number. For example, Bush made his tax cuts "temporary" with built-in sunsets, and the CBO had no choice but to score his tax cuts based on the language of the legislation, even though Bush was publicly proclaiming his intent to make the tax cuts permanent.

Thus, my own suspicion is that CBO's economists know that the $25bil is bogus, but the text of the legislation was specifically drafted in order to produce an unrealistically low estimate from the CBO, while creating underlying obligations and hidden guarantees that in the next year or two will cost much more. That way, you can pass the legislation by telling the public the cost will only be $25bil while knowing all along the cost will be much higher when the final accounting is done.

This is done all the time in DC and is known as finessing the CBO score. Check out http://www.urban.org/url.cfm?ID=1000553&renderforprint=1&CFID=37500890&CFTOKEN=32282775 if you want to learn more about the practice.

By: Anonymous

Anonymous — Tue, 22 Jul 2008 21:46:00 +0000

I wonder what the return on investment is for Fannie and Frauddie’s 200 million of lobbying?

By: Anonymous

Anonymous — Tue, 22 Jul 2008 20:22:00 +0000

Wow Fand F must have some lobby to get the CBO to roll over. I just e-mailed my Senator and asked her to give Paulson the $25bil but no more for now.
We have got to stop this steamroller

By: CV

CV — Tue, 22 Jul 2008 20:18:00 +0000

The problem with the Fed’s bailing out any GSE @ this point is they can’t manage to stop the bleeding of the taxpayers failing GNMAE portfolio. If managed in the private sector they would be bankrupt 4X over, but we are going to bail out Freddie/Fannae? Does this make sense?

By: Anonymous

Anonymous — Tue, 22 Jul 2008 19:07:00 +0000

Enron was ahead of its time. These days, the Fed would certainly give it access to the discount window.

By: Stuart

Stuart — Tue, 22 Jul 2008 18:53:00 +0000

I understand we have to deal with the figures given to us, at least to comment upon, but why does anybody of independent critical thought believe the figures given to us for those who are giving them have repeatedly demonstrated their failure to grasp the scale and depth of situation. Remember the infamous “it’s contained”.

By: Penn

Penn — Tue, 22 Jul 2008 17:45:00 +0000

That estimate is just more fluff. The government is blowing dandelions.

Look at Fannie and Freddie today. The stock market's up a little, but meanwhile they're tanking again.

Please, somebody answer these questions for me...
Does the Treasury have the cash to bail out Fannie and Freddie, or would it have to borrow that money from overseas?

And second question: if Fannie and Freddie were to go bankrupt and need rescuing, would anyone lend the Treasury money anymore?

The Feds talk talk talk about saving these corporations. But it seems to me that all this talk is intended to boost confidence, and nothing more. When it comes down to it, the Feds can't do anything except watch what happens and give hoorahs from the sidelines. If Fannie and Freddie fail, the dollar is going to hit a deathspiral and no one will lend us money to save ourselves.

Short-circuit.....

By: Ginger Yellow

Ginger Yellow — Tue, 22 Jul 2008 17:13:00 +0000

It’s absurd to assume it won’t be renewed, but that’s how government forecasting works, sadly. Look at the White House and CBO projections for the budget deficit. Even the most conservative projections include the sunsetting of things that everyone knows will be renewed, and the retention of the AMT that everyone knows will be scrapped or drastically altered.

By: S

Tue, 22 Jul 2008 17:10:00 +0000

Biggest tell on WB resutls was CEO saying that they were working diligently to reestructure the pick a pay so as to get those people into gov’t backed products. GSE nationalization is the equivilant of the auction facilities. Recall the stories about LEH structuring lev loans and high yeild into CEDOs for deposit at the Fed. Same thing. Also curious that Paulson included in his pitch the international angle. UAE is threatenign to break the dollar peg and the GCCs can’t be far behind. Paulson has said in very explicit terms that he has no interest ins topping the needed correction in housing prices. His interest is in protecting the franking privilage of the United States. I would be willing to bet that the FHLB debt in the system will eventually end up at the taxpayers doorstep, or a good percentage of iot. Nationalization is the super SIV

By: WILLIAM ROTH

WILLIAM ROTH — Tue, 22 Jul 2008 16:58:00 +0000

METHINKS THE ESTIMATE IS A BIT LIGHT

NEW YORK (CNNMoney.com) — Among the nightmares lurking around the corner for the already battered housing and credit markets would be a meltdown at mortgage financing giants Fannie Mae and Freddie Mac.
Although few are predicting an imminent need for a bailout just yet, credit rating agency Standard & Poor's recently placed an estimated price tag on this worst case scenario — $420 billion to $1.1 trillion of taxpayer's money.
http://money.cnn.com/2008/04/21/news/economy/fannie_freddie/?postversion=2008042217