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Goldman's Levitt Calls Obama's Gimmick To Keep GSEs Off The Balance Sheet "Shades Of Enron"

Tyler Durden's picture


A few days ago we made some observations on the just-announced nearly $4 trillion 2011 budget. The key point was that while the ugly numbers already looked like a superglued Frankenstein monster without a Kardasian botox treatment, or even simple lipstick, it would have been truly disastrous had the administration done what Peter Orzsag threatened he would do 2 years ago, namely bring the GSEs, Freddie and Fannie, on the government's balance sheet. How this is not the case yet is simply stunning: the GSEs enjoy not only the constant "bid of first refusal" courtesy of the Fed's MBS QE program, but an explicit Treasury guarantee that has no ceiling as of last Christmas eve. Bloomberg's Jonathan Weil today came to the same conclusion, although being a Bloomberg employee he was characteristically much more crass, uncouth and downright cynical than the paragon of respected journalistic patois that is the establishmentarian concept known as Zero Hedge. In an attempt to awake the morts out of their stupor, a pandering Weil uses such cheap tricks as hyperventilating allegory, sarcasm, and hyperbole when saying that  "[b]y all outward appearances, it seems
Obama and his budget wizards decided that including the
liabilities at Fannie and Freddie would be too much reality for
the world to handle. So they left the companies out, in a trick
worthy of Enron’s playbook, except not quite so hidden.
" Obviously, Bloomberg has an uphill struggle if its ever wishes to reach profitability (in the trillions of dollars that is... billions is so fin de pre-bailout siecle). We also fear for Weil's job prospects should he ever wish to find an occupation at such a highly respected place, where not only is there a 4 syllable word minimum but no sentences ever end in prepositions, as the Reuters blogosphere. Ironically, Bloomberg did redeem themselves somewhat later today, when in a Tom Keene interview, Goldman policy advisor Arthur Levitt is caught on tape performing more of the same hyperventilating, and in doing so blasting the administration, using the same Enron-esque analogy, when analyzing the paradox of the GSEs and the sovereign balance sheet.

The full transcript is below. We have bolded the relevant sections. We are more curious whether Levitt's expressed opinion is that of Levitt or of his employee, Goldman Sachs. Our money is on the latter. And when 85 Broad calls Obama's fiscal policy "Enron" you know the cold war between Goldman and Obama is getting warmer by the day.

     FEBRUARY 4, 2010
     (This is not a legal transcript. Bloomberg LP cannot guarantee its accuracy.)
     TOM KEENE, HOST, 'BLOOMBERG SURVEILLANCE': Right now, Arthur Levitt, Policy Advisor, Goldman Sachs, Bloomberg LP Board Member, Former Chairman of the SEC.
     Jonathan Weil out with a commentary this morning on the Bloobmerg of a $6.3 trillion essentially off balance sheet transaction. Should Fannie and Freddy be on the balance sheet? Should they be visible to the taxpayers?
     ARTHUR LEVITT, POLICY ADVISOR, GOLDMAN SACHS: Absolutely. It's an incredible article. He's absolutely right. Fannie and Freddie belong on the balance sheet if we're in an era of transparency.
     The White House is already forecasting $1.3 trillion budget deficit for 2011, which is about $3 of spending for every $2 of government receipts. Fannie and Freddie are wards of the State. Orszag already promised that that's where they should be. And he's not putting it there. Shades of Enron.
     KEENE: Really? That big a deal?
     LEVITT: It is that big a deal.
     KEENE: Shades of Enron?
     LEVITT: Absolutely.

     KEN PREWITT, HOST, 'BLOOMBERG SURVEILLANCE': So if Fannie and Freddie were on the government's balance sheet, everything would look even worse than it does now?
     LEVITT: Oh, considerably worse.

So you don't need the much respected Zero Hedge or the pandering pamphlet that is Bloomberg to get to the same conclusion as Goldman does - that Obama is currently engaged in massive "Enronesque" accounting fraud, which if fully reflecting the 140% debt/GDP reality would cause US CDS to trade side by side with those of Bulgaria.


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Fri, 02/05/2010 - 00:33 | Link to Comment Steve Dallas
Steve Dallas's picture

You know, Christo's Bulgarian... 


I wonder what he could have wrapped with all the documents Arthur Andersen shredded.

Fri, 02/05/2010 - 00:39 | Link to Comment buzzsaw99
buzzsaw99's picture

GS really has room to badmouth Enron. [/sarcasm]

Fri, 02/05/2010 - 00:43 | Link to Comment Daedal
Daedal's picture

My favorite GSE of all: GSe

Fri, 02/05/2010 - 01:33 | Link to Comment Master Bates
Master Bates's picture

That's some pretty funny shit! :)

Fri, 02/05/2010 - 08:51 | Link to Comment moneymutt
moneymutt's picture

so true, something about a pot talking to kettle comes to mind

Fri, 02/05/2010 - 11:54 | Link to Comment TheGoodDoctor
TheGoodDoctor's picture

Yeah honestly, that is what I was thinking too. It cracks me up. Now they are talking about Spain, Greece and Portugal on the news but yet somehow cannot connect the dots to the USA being in a similar situation. Hmmmmm odd don't you think?

Fri, 02/05/2010 - 00:51 | Link to Comment tomdub_1024
tomdub_1024's picture

Let em go at it, GS and Govt, maybe enough bs will come out in the laundry for the Ovine to wakey-wake and help the reset button get pushed....meh...sorry, just an alcohol-induced'er mind...

Fri, 02/05/2010 - 01:01 | Link to Comment Silver Bullet
Silver Bullet's picture

I must say, I'm submitting 'mort' as the word of the year for 2010.

I use it all the time now.

Fri, 02/05/2010 - 11:03 | Link to Comment mikla
mikla's picture


Fri, 02/05/2010 - 01:01 | Link to Comment Anonymous
Fri, 02/05/2010 - 01:18 | Link to Comment Anonymous
Fri, 02/05/2010 - 02:35 | Link to Comment Problem Is
Problem Is's picture

Very eloquent and concise anony...

May I add: Kabuki Theater.

Politicians and Wall Street lackeys in dresses and make up waddling on stage for performances as biatches...

One must do what one does best...

Fri, 02/05/2010 - 01:58 | Link to Comment Bear_Cub
Bear_Cub's picture

Basically, the O-team leaves off the potential losses of the GSE's (Fannie and Freddie most notably) in the budget. The government has already stated that it will financially back Fannie and Freddie; even if they lost a trillion dollars this year, taxpayers would be on the hook for it. Therefore, it would be more transparent to include the potential losses in the budget, something that the administration did not do because the Debt-GDP ratio would look even worse.


Who knows how much F/F could lose anyways? 300B? 500B? Maybe a trillion over a few years isn't improbable...

Fri, 02/05/2010 - 07:36 | Link to Comment MsCreant
MsCreant's picture

The killer of this is that Freddie/Fannie were, in the past, NOT EXPLICITLY BACKED BY THE GOV. It was in no contract, it was "assumed" though. This crisis forced the hand of that assumption. But we (tax payers) never contractually had to back these. While it was not explicitly backed, I could see the argument for not having it on the books. That argument NO LONGER EXISTS!!!!!

Fri, 02/05/2010 - 05:10 | Link to Comment Anonymous
Fri, 02/05/2010 - 01:06 | Link to Comment Anonymous
Fri, 02/05/2010 - 01:08 | Link to Comment Number 156
Number 156's picture

I don't get it. GS is making money hand over fist from the taxpayer, (thank you Obama, Bush, et al...). What is that fool complaining about? Not to mention, the hypocrisy of complaining about 'accounting gimmicks'.  

Am I missing something, or is he trying to grow a layer of teflon?

Fri, 02/05/2010 - 01:27 | Link to Comment Miles Kendig
Miles Kendig's picture

A classic example of attempting to deflate and deflect criticism and attention by focusing it upon someone else.  What makes this so excellent is that the reason Levitt and by extension GS know where to hit the current administration is because they are the ones who helped design and implement the whole process to begin with.  At great personal profit to themselves.

Fri, 02/05/2010 - 02:27 | Link to Comment tomdub_1024
tomdub_1024's picture

if you keep the Ovine continuously turning in the the same mis-direction, they will continuously walk in circles, distracted from the real sleight of hand of the puppeteers, the circle growing ever smaller until enough cross the event horizon...but by then the wealth, and its appropiators, are gone to fairer climes...

Kettle, meet pot, play this long enough and we both can be outta the fire, and leave the mess for the Ovine to clean up.

Fri, 02/05/2010 - 01:43 | Link to Comment Anonymous
Fri, 02/05/2010 - 01:49 | Link to Comment Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Hegelian dialectic; Create smoke and fire, and say that someone else did it..  

Fri, 02/05/2010 - 02:04 | Link to Comment Cistercian
Cistercian's picture

 That was one of the funniest intros ever Tyler.Most excellent form!

Fri, 02/05/2010 - 02:17 | Link to Comment Problem Is
Problem Is's picture

"superglued Frankenstein monster without a Kardasian botox treatment..."

I love "Caustic" Tyler. When I make comments like that, people think I am obnoxious...

Fri, 02/05/2010 - 02:28 | Link to Comment tomdub_1024
tomdub_1024's picture

could be worse, ya know...:)

Fri, 02/05/2010 - 02:38 | Link to Comment Problem Is
Problem Is's picture

You mean... maybe I AM obnoxious?

Fri, 02/05/2010 - 03:10 | Link to Comment tomdub_1024
tomdub_1024's picture

obnoxious not so bad, I mean, SOMEone has to push the envelope, and those smart enough will recognize the intent...:) If one is reality based, obnoxious just alerts one to a previously unknown opinion, tangent, etc., that may be worthwhile chewing over.

Fri, 02/05/2010 - 03:14 | Link to Comment tomdub_1024
tomdub_1024's picture

some of my favorite commentators on ZH are totally obnoxious and caustic, those are the ones that make me think....which is why I am here to begin with, to think, and not be Ovine.

Fri, 02/05/2010 - 03:18 | Link to Comment tomdub_1024
tomdub_1024's picture

my wife informed me that I am what do i know...:)

Fri, 02/05/2010 - 10:10 | Link to Comment Cindy_Dies_In_T...
Cindy_Dies_In_The_End's picture

Drink a lot and be happy. Why aren't you cheating on the wifeanyway? Everyone else here is. ;)

Fri, 02/05/2010 - 14:49 | Link to Comment tomdub_1024
tomdub_1024's picture

LOL! I was not aware of that...:)

Sun, 02/07/2010 - 21:45 | Link to Comment Problem Is
Problem Is's picture

"my wife informed me that I am obnoxious..."

It is your wife's/girlfriend's job to tell you you're obnoxious...

"Can you see the real me? Can you? Can you?"

Sun, 02/07/2010 - 22:02 | Link to Comment Problem Is
Problem Is's picture

"SOMEone has to push the envelope, and those smart enough will recognize the intent...:)"


Sarcasm and a caustic delivery are a mocking of the myth narrative. It is the pessimist's and/or skeptic's friend.

It is one of my favorite forms of the written word. When some one can ridicule the dominant view with facts, biting humor and witty disdain (eg "Caustic" Tyler)... there is nothing funnier and sometimes nothing more poignant.

You have to ask yourself, "How can these optimistic dick-wads actually believe this shit?"

This is what a society of used mortgage salesmen gets you. Everyone bullshitting others and more importantly themselves to sell some dumb ass a used mortgage, used car, used MBS junk bond, used condo... what ever this dick-wad society is selling at the moment, for a zero sum gain.

This is a society made up of more and more bullshitters that can not add value to anything or produce anything of substance. The bottom 95% learn the rules from the 5% at the top... and what a sorry 5% they are...

Fri, 02/05/2010 - 02:45 | Link to Comment Hephasteus
Hephasteus's picture

This is great that we can adopt enron style accounting to governement. Because the ENTIRE ISDA is enron style accounting, law, and deals.


Fri, 02/05/2010 - 03:08 | Link to Comment lewy14
lewy14's picture

Tyler, I think the "Enron" comment is certainly fair - the GSEs are the ultimate "off balance sheet" vehicle. I don't see how it's fair to count the whole of their liabilities as being the debt of the USG, because there are assets backing those GSE liabilities - namely US residential property.

Are those assets sufficient? Unknown - wildly unlikely even - but they are not zero.

So I don't see how you get to 140% debt to GDP. What the Treasury is doing is writing a derivative contract for the GSEs. (It's not a "put", exactly, and it's not a CDS exactly either).

However you classify the guarantee, the Treasury is extracting no premium for this guarantee, and is provisioning no collateral for it either. It would be interesting to estimate the market level of both the premium and the collateral - as if, say, GSE guarantees had to be purchased in the OTC market. Those would be fair numbers to charge against the Treasury.

Of course those numbers would be bullshit too, but they'd be arguably more defensible bullshit.

Fri, 02/05/2010 - 03:11 | Link to Comment JuicyTheAnimal
JuicyTheAnimal's picture

GS is tellin' on 'em 'cause they talkin' 'bout taking 'way dey prop tradin'. much do you think it would cost to put a gigantic circus tent over the whole of DC?  

Them clowns should invest in that. 

Fri, 02/05/2010 - 07:13 | Link to Comment Anonymous
Fri, 02/05/2010 - 12:46 | Link to Comment viahj
viahj's picture

how much do you think it would cost to put a gigantic circus tent over the whole of DC?


Funny, the image that popped into my head was that of a tent over a house that is being fumigated.

Fri, 02/05/2010 - 13:26 | Link to Comment Anonymous
Fri, 02/05/2010 - 04:54 | Link to Comment carbonmutant
carbonmutant's picture

I read ZH for the metaphors.

Fri, 02/05/2010 - 07:41 | Link to Comment MsCreant
MsCreant's picture

You meant that metaphorically, right?

Fri, 02/05/2010 - 10:07 | Link to Comment Hephasteus
Hephasteus's picture

I'm in it for the metathrees.

Fri, 02/05/2010 - 10:37 | Link to Comment Anonymous
Fri, 02/05/2010 - 05:34 | Link to Comment A Man without Q...
A Man without Qualities's picture

Considering how fiercely the likes of GS lobbied to prevent the real reform necessary to stamp out most of the loopholes that allow Enron style gimmicks, this seems a bit rich.  Enron failed because it could no longer fund itself and because they could not transfer their bad assets to the government.  If only they had been able to turn themselves into a bank holding company and access the Fed discount window, they may still be alive today...

Fri, 02/05/2010 - 05:36 | Link to Comment JimboJammer
JimboJammer's picture

Good  Job  Tyler...  This  is  Big  news... the  US Dollar  is  Dog  food.

Fri, 02/05/2010 - 05:40 | Link to Comment Rick64
Rick64's picture

GSEs are in purgatory.

Fri, 02/05/2010 - 06:43 | Link to Comment Anonymous
Fri, 02/05/2010 - 06:43 | Link to Comment exportbank
exportbank's picture

Truth is too ugly. Governments(no matter the party) are unable to deal with reality - imagine if governments (all levels), pension plans, banks and companies all marked-to-market (forget S.S., Medicare and drug benefit). Even though truth is your friend, they see it as the enemy.

Fri, 02/05/2010 - 07:06 | Link to Comment twotraps
twotraps's picture

Whatever.          The govt is revealing itself as a circus.....or its just so exposed now that its finally ok to speak of it as a totall charade.


1.  How do we make money, protect what we have?

2.  Is there Any 'out of bounds' at all we need to worry about, as far as the govt goes? 


The same old discussion about pathetic politicians is getting old.  The culmination of their efforts is plain to see..............Check out the Illinois fiscal situation!

Fri, 02/05/2010 - 07:16 | Link to Comment rawsienna
rawsienna's picture

Another good one regarding the budget that was under the radar - they have FHA making 6bb in 2011.  While my personal view is that they will need a bailout of at least 25-50bb, the thought that FHA would contribute 6bb of profit is insane. If true, why not privatize em and get rid of the problem once an for all?

Fri, 02/05/2010 - 07:34 | Link to Comment twotraps
twotraps's picture

Totally agree.  Kinda hard to take their accounting seriously anyway!  It prints money, then borrows from itself to buy bonds to support programs protected with favorable rates and accounting.  Good game if you can get it.

Fri, 02/05/2010 - 07:35 | Link to Comment pros
pros's picture


No "news" here.

The debt of the GSE's is published in the z.1 FRB

just look through the stats and add up the numbers.

I have posted the totals which show U.S. debt is just a little less than 300% of GDP (insolvency is about 100% depending on GDP growth assumptions)..on this site a number of times.


U.S. is insolvent......

but so are UK, Switzerland, Ireland, Spain, Japan, Italy, Portugal, Greece, Hungary, Latvia, etc.

and China will become insolvent when U.S. reneges on its debt to them (I haven't decided which reason will be used....probably because they are "terrorists" of some type) U.S. has reneged in the 1932, in 1971

the US is the only country which can renege on its foreign liabilities without consequences

it can easily force the GCC to continue to accept the dollar because if the US pulled support from the Gulf Osama bin Laden would be running Saudi Arabia and Kuwait within days and the anybody related to the House of Saud would face the same fate as the Shah.

U.S. dollar and U.S. treasuries are where you want to be because

"In the land of the blind the One-eyed man is King"

U.S. can and will use its missiles, aircraft carriers, cybertechnology, etc., to 

"do what it has to do" in an attempt to preserve hegemony for as long as possible.

this is where the dishonesty, greed, corruption, secrecy and ruthlessness of the entrenched US elite becomes an asset instead of a liability...when they destroy the rest of the world economy to save themselves...they will save the rest of us...serendipitously...oh there will be casualties among the conscripted...lots of body bags...but you won't see them.

interesting to watch it a good movie..or a horror show?

Fri, 02/05/2010 - 07:37 | Link to Comment twotraps
twotraps's picture

Wow.   Kinda of a lot to handle this early in the am, but I love it.  Well said.

Fri, 02/05/2010 - 07:48 | Link to Comment MsCreant
MsCreant's picture


Not giving you shit, serious question here. Are you suggesting we just throw in with them? Root for them from the sidelines? We are going to be raped anyway, might as well lay back and enjoy it?

Fri, 02/05/2010 - 08:07 | Link to Comment pros
pros's picture


I'm only an old man who has seen a lot and uses common sense.


It's all baked in the cake...look at history..

the alternative is domestic regime change...

like England 1066 or England 1688-

France 1789, Russia 1917----the elite is aware that this is their fate if they don't do what I say, so they will undertake the course I England at turn of century going to war then in 1914 and in 1939 as their Empire dissipated..

Fri, 02/05/2010 - 08:37 | Link to Comment MarketTruth
MarketTruth's picture

REMEMBER: the bankster family cartel House Of Rothschild made their main fortune by purposeful misinformation of the result of a war that then crashed the England stock exchange. With this deception known only by the Rothschilds in play, the market tanked hard because other thought England lost the war. The Rothschild bought big at the bottom of the England stock market crash and when the truth finally was revealed about the result of the war (England won) the market went back up dramatically, thus giving the Rothschild an extremely large gain.

So basically, the leading member of the current worldwide bankster cartel abused the stock market through lies and deception to achieve their wealth.

What makes anyone here on ZH think these  scum bags would not do it again and again without a care to whom they hurt or bankrupt for their own family gain? The world is right now dealing with these blood sucking scum bags who happen to continue their fraud via a FIAT currency (dollar, Euro, etc). It is time to remove any and all CONfidence in their banking and monetary system (dollar, Euro, etc).

Fri, 02/05/2010 - 09:31 | Link to Comment twotraps
twotraps's picture

What are some scenarios here?  

Fri, 02/05/2010 - 10:15 | Link to Comment Cindy_Dies_In_T...
Cindy_Dies_In_The_End's picture

Pros makes sense. Of course this government owould throw others under the bus.


Thats not rape, thats Darwinism.

Fri, 02/05/2010 - 10:41 | Link to Comment Anonymous
Fri, 02/05/2010 - 10:53 | Link to Comment suteibu
suteibu's picture

Excellent observation.  If you want to survive, get tougher and smarter no matter what the conditions.

Fri, 02/05/2010 - 08:33 | Link to Comment IBelieveInMagic
IBelieveInMagic's picture

Truth unvarnished!

Fri, 02/05/2010 - 07:43 | Link to Comment Catullus
Catullus's picture

Patois!  Finally a New Orleans reference.


Fri, 02/05/2010 - 08:17 | Link to Comment Anonymous
Fri, 02/05/2010 - 12:38 | Link to Comment TheGoodDoctor
TheGoodDoctor's picture

Actually no consumption tax is needed. It would be much easier to raise that tax as needed. What should be done is a moratorium on income taxes for three years. If you want the economy to bounce back quick anyway. What is it 1/3 of tax revenue is generated by income tax? So, why can't the government tighten their belt for three years.

Fri, 02/05/2010 - 13:34 | Link to Comment MsCreant
MsCreant's picture

I think they would borrow even worse.

Fri, 02/05/2010 - 08:57 | Link to Comment moneymutt
moneymutt's picture

While were at it, why don't we come clean on everything. Get real about Soc Sec, Medicare, pensions, war spending, GSEs, TARP and other bailouts, FDIC etc...

What I think it is real funny is GSEs had implicit govt backing going into 2008, but who knew GS/AIG had 100 percent backing, shoot GM couldn't even get that.

Fri, 02/05/2010 - 09:09 | Link to Comment Anonymous
Fri, 02/05/2010 - 10:20 | Link to Comment Winisk
Winisk's picture

With all of the modern sophistication of money markets and international trade it does come down to playground politics.  If the bully is losing the game, he changes the rules to suit him.  And if the others retort the US will childishly respond with, "Oh yah, well what are you going to do about it?".  Few countries will want to play except for his loyal sidekicks, that's what.  God help us if there is a push back.

Fri, 02/05/2010 - 10:28 | Link to Comment Anonymous
Fri, 02/05/2010 - 16:44 | Link to Comment Anonymous
Fri, 02/05/2010 - 16:57 | Link to Comment Anonymous
Sun, 02/07/2010 - 02:11 | Link to Comment Anonymous
Sun, 02/07/2010 - 19:53 | Link to Comment Anonymous
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