IMF Issues Biggest Criticism Of US Policy To Date: Says Treasury Should Put GSE Obligations On Balance Sheet

Tyler Durden's picture

In another confounding episode of biting the biggest hand that feeds it, the IMF has just issued another criticism of US fiscal policy, and in its just released Global Financial Stability report says that the US should include in its budget the "cost of mortgage loan guarantees and other housing supports." Not only that but the fund also urges that the Treasury should immediately make its support for the GSEs explicit and carry Fannie and Freddie's roughly $7 trillion in debt (discussed extensively by Zero Hedge over a year ago: "Obama's Budget Has One Small, Missing Piece.... For $6.3 Trillion Dollars") on the books: a move that would send US debt to well over $20 trillion and make the ratio of marketable debt (the lowest common debt denominator) to GDP well over 100%. To wit: "Government guarantees should be explicit and fully accounted for on the government's balance sheet... There is a need for better-defined and more transparent government
participation in the housing market, with all such policies, including
strict affordable housing goals, transparently shown in the government's
budget." Of course this won't happen for many years as otherwise the US would effectively confirm that it is insolvent per various Reinhart-Rogoff ratios, and instead the administration will continue pushing with its misguided plan of offloading GSE obligations on the balance sheets of private institutions. As if that will change anything: it only means that the next taxpayer funded bailout will save the TBTFs once again, instead of leading to a run on the Treasury. End result: same thing.

Reuters summarizes the report:

The Obama administration has kept Fannie and Freddie off the budget, as did the Bush administration before it. Including them would make an already ugly fiscal picture look even worse.

The United States put those companies, which buy loans from banks and repackage them as securities for investors, into conservatorship in 2008 as the housing market bust led to massive losses on loans they guaranteed. The government has propped them up with more than $134 billion in taxpayer funds.

The U.S. Congressional Budget Office said in 2010 that Fannie and Freddie should be treated as government entities and counted in the budget, and many Republicans in Congress have pushed for that as well.

The IMF has generally tiptoed around direct confrontation on policy issues with the United States, which is its largest member and has effective veto power over any IMF decisions.

Overall, the Obama administration's housing reform proposals were "headed in the right direction, although some concerns and challenges remain," the IMF said.

The Fund said the reform efforts rightly focused on winding down Fannie and Freddie, adding the firms should be closed over the medium term to allow private-market securitization to return.

 The IMF also faulted the Obama administration for failing to address the tax deduction for mortgage interest, which it called "both expensive and regressive."

The tax break is hugely popular, and eliminating it would no doubt cause political pain at a time when the Obama administration is already preparing for the 2012 presidential election campaign.

Poor IMF: considering its recent Kotlikoff-assisted criticism of US budgeting proposals (see "IMF Says US Must Raise All Taxes, Cut All Entitlements By 35% To Contain Future Budget"), and now this, we anticipate some rather serious threats of funding withdrawal by the US, as nobody is allowed to even remind that Obama's head is planted firmly in the sand of denial (which according to recent reports is also radioactive, but well below soon to be hiked limits).

Quoting from the relevant section in the report:

The role of government in the housing market should be carefully reviewed as it may unintentionally contribute to financial instability. In particular, there is a need for well-calibrated government participation with less focus on direct provision of mortgage credit and more concern about systemic effects and externalities. Better calibrated government participation would also rely on more targeted measures to achieve social objectives, such as affordable housing for low-income households. Dedicated government agencies need to be transparent and carefully constructed. In addition, government guarantees should be explicit and priced upfront to mitigate the moral hazard problem—that is, lenders taking excessive risk based on the implicit assumption that the government will eventually rescue them in the event of a crisis.

A disproportionate focus on homeownership might exacerbate house price swings through government-led subsidization of mortgage loans and a relaxation of lending standards in response to growing competition between the government and financial firms. Some countries might want to reconsider their policies in this regard: for example, good-quality rental housing could be a better option for low-income households. A more level tax treatment across owner-occupied and rental housing would help reduce the current bias toward homeownership. In particular, in the absence of taxation of imputed rents and capital gains on housing, countries should reassess policy tools such as mortgage interest deductibility, which should be capped and apply only to first mortgages on primary residences.

In the foreseeable future, there seems to be a continued need for government guarantees for securitized mortgages, given the significant remaining uncertainty and vulnerability in the U.S. mortgage market, particularly in the private-label residential MBS market. Substantial swings in the cost of mortgage financing could be particularly damaging at a time when weaknesses in real estate markets continue to weigh on the economic recovery. However, government guarantees should be explicit and fully accounted for on the government’s balance sheet. Over the medium term, and with appropriate reforms to encourage “safe” securitization as discussed in the chapter, the GSEs should be wound down to make way for private-label securitization to reemerge as a viable option. Ultimately, the details of implementation will be key. The challenge will be to strike the right balance between delivering an appropriate level of explicit government participation and discouraging another cycle of overinvestment.

Bottom line: another one joins the ranks of the truth tellers... which can only mean the retaliation will be vicious.

IMF Chapter 3

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
66Sexy's picture

Doesn't the IMF set US policy?

Its all the same people, and they are trying to make us think it's not?

Long-John-Silver's picture

Obama is attempting to crash the US Dollar so the IMF can set US policy. The Sheeple will demand it.

Harlequin001's picture

More games. Why would the US want to put any of this on it's balance sheet?

Think about it, how is money created? It is created from nothing.

Where do you think the losses from all these defaulted guarantees will ultimately go?

The answer is back to the same nothing from whence they came. Nobody loses a single cent.

Only the Fed can do this. Whilst I am fully aware that it isn't quite this simple and the parties do change somewhat, when you think about it Congress asks the Treasury for money to build an aircraft carrier or something. The Treasury prints up a $billion TBill and trots down to the Fed, which writes a check on itself for $1 billion which it gives to the Treasury in receipt. Treasury gives the cash to Congress to spend on an aircraft carrier. Let's assume the Treasury keeps it for a moment.

Now supposing the Fed wishes to remove liquidity, it simply returns the TBill to the Treasury which returns the currency to the Fed. The Treasury shreds the T Bill and the Fed shreds the currency et viola, balance sheet is balanced once again. Instead of returning a TBill the Fed now returns a worthless defaulted CMBS at full face value. The Treasury pays $1 billion to the Fed in receipt and shreds the CMBS, the Fed shreds the currency and the balance sheet is once again balanced.

Treasury, which is now short of currency  now asks the Fed to buy another $1 billion TBill, so the Fed writes a check on itself once again and the currency is the same as before, balance sheet is once again balanced and the whole load of defaulted crud is now exchanged as TBills. Nobody loses any money and the taxpayer certainly doesn't pay.

We all know it doesn't work and inflation goes skyward but I wouldn't mind betting that the Fed thinks if it has $10 trillion of newly issued TBills in exchange for its defaulted CMBS it can simply start shredding dollar bills as it returns the CMBS to Treasury and the whole thing will resolve itself. Madness when you think about it but who needs lose any money through anything other than inflation?


MrBoompi's picture

The answer is back to the same nothing from whence they came. Nobody loses a single cent.

I'm sure China doesn't quite feel this way, but I know where you're coming from.

SheepDog-One's picture

Exactly right, its ALL the same central banksters, they just put on different hats depending on which side of their mouths they need to speak out of.

In Fed We Trust's picture

the US debt to well over $20 billion and make the ratio

I think you mean 20 trillion.

MarketTruth's picture

Agreed, you need to think of it like this:

The IMF is the parent company of the Federal Reserve.

I am Jobe's picture

Yeap one and the same. Its over. Another YAK YAK session.

chunga's picture

Don't give up so easy friend.

I posted this earlier (buried way down deep in another thread) but will do it again. Tyler, this needs a spot up top.

Read the brief...

Moll vs. MERS, et al

On a micro Alpha Delta level individual battles will be won or lost in the courts. Failing that...who knows where the battles will be fought.

If you are a Fight Club Lawyer join us.

Foreclosure Fraud – Economic Injustice Examined

MachoMan's picture

JFC, where do you find these people...  do they get paid by the pound?  We're not treading any new ground here...  either you're the holder or not...  and, if not, then the holder's valid agent...  and, if not, then you'd better not foreclose...  and, if you've already foreclosed, you'd better hope to high hell you didn't do so against anyone who's managed to hear about fraudclosuregate.

Decent brief but shit...  we would need to get the court's permission to file this boat on an APPELLATE BRIEF...  let alone a response to a motion to dismiss...

chunga's picture

The judges look for the tiniest way to escape. RI actually tried to push it to NH...they took a pass. I think this brief was aimed at radioactive "Bucci" and all the cases sitting behind it as well. Dismiss this one and it sets the stage for dismissing them all. This is incorporated with a "Reclamation Deed" and "Repudiation of Title". As much as it pained you to read it, it was a lot harder for the defense. (I've seen their response and they have brought in some pretty high-powered measuring by the pound it must be pretty heavy)

I think Glenn Russell's printing costs alone were like 7K in Ibanez. It didn't come off legalzoom. How much did defense spend on Ibanez/LaRace over 2 homes valued at 100k each?? This is like a finger in the dyke thing. If you want a landmark case you must be thorough.

gabeh73's picture

"Bottom line: another one joins the ranks of the truth tellers... which can only mean the retaliation will be vicious."

good article TD except this last line.

These people are MIXING truth with propaganda. This is typical, yes the US government is hiding debt in several ways to understate our problems and to come out and admit it is a break from the MSM line...they counter the truth telling with the lie that this must be resolved by RAISING taxes! 


So this creates the impression on the weak minded that honest "truth-tellers" are for massively increasing taxes and bringing on austerity for the middle class.


A real truth teller would explain that the military industrial complex has almost sucked the corpse dry and tax increases to feed the vampires more is not a good solution for the masses.

MrBoompi's picture

Yes, the Fed is a part of the cartel, if not the leader of the pack. The Wall Street Journal can't even get it right, they call the Fed a government agency.

To these folks, collecting the monthly interest payments as scheduled is the most important thing in the whole world. They will tell us exactly what they believe will allow them to continue collecting interest payments, which, in the case of the US entails raising all taxes and cutting all entitlement spending by 35%. THIS would guarantee their interest payments would be collected for the foreseeable future.

And the overall debt? Well, that would have to keep growing of course. You really don't think any plan coming from these folks would actually REDUCE the amount of debt out there do you? And you really don't believe any plan coming from these folks would be designed to help anyone but THEM right?

gabeh73's picture

thank you for explaining what I was trying to say.

covert's picture

there are a lot of fake and therotical conspiracies however, there are a few true ones also.what's george up to?


SqueekyFromm's picture

OK, the IMF is trying to screw us out of $7 Trillion!!! I am also posting this link up high on the thread because it is VERY IMPORTANT and people might not see it way down there where I am now. BUT, the Fannie Certificate says right on its front page:


I don't know how to do pictures here, sooo here is the link and Thank You Mr. Karl Denninger!!!


Squeeky Fromm, Girl Reporter




gabeh73's picture

agreed again...officially dumping 7 trilion more on the backs of taxpayers(current and for generations to come) is not a an act of rebellion. This is just the cartel leaders speaking up about the reality we can expect. 

EscapeKey's picture

Oh, you mean like the UK did a few months back?

The unadjusted measure of public sector net debt expressed as a percentage of gross domestic product (GDP), was 149.1 per cent at the end of February 2011 compared with 152.1 per cent at end of February 2010. Net debt was £2,252.1 billion at the end of February compared with £2,183.4 billion a year earlier.

I am Jobe's picture

Yeah, we ahve so many deicison makers that no one knows what to do anymore. Incompetance witten all over . Must be the Harvard Education Freshman Class. Screw off 101 and Posting on Facefart is all needed to graduate and suck on a bankers dildo.

franzpick's picture

...a move that would send US debt to well over $20 billion...

20 Trillion? 200 Trillion?  I can't keep track anymore.

Alienated Serf's picture

thanks for your meaningful contribution to the discussion, long john.  now please go kill yourself.

Cdad's picture

Pretty sure that should be $20 Trillion.

Stuart's picture

Obama to IMF: STFU and never pull that skeleton out of our closet again.   We need it to stay in there and you're not helping our obfuscation campaign and other efforts to keep the public uninformed.    

bob_dabolina's picture

Balance sheet transparency?

Fuck you

-Tim Jeethner Turbo Tax Account Rep.

youngman's picture sounds like the IMF is starting to make plans to jetison the USD as the reserve this kind of talk they will set the stage to leave it...

franzpick's picture

Exactly, and pave the way for the introduction of the next level of financial holocaust, the 'special-destruction-right' SDR ?

The Axe's picture

SheepDog-One's picture

Right! The continuing trillions in debt will just keep getting swept under the rug, while 400 lb americans will just keep enjoying cheap bulk food purchases on food stamps at Walmart forever, never experiencing any cuts. Rock on!

Hansel's picture

It shouldn't happen.  The government shouldn't be guaranteeing MBSs.  Every prospectus for every bond sold by Fannie and Freddie said they weren't backed by the government, so let's live up to that promise.

Rider's picture


Timma: "Yes we ought that pension, and the tiny GSE too, and medicare thingies. We will pay, Timma swears it by the tooth fairy. I will pay for everything with this new freshly printed piece of paper."


SheepDog-One's picture

Paper exchanges such as DOW having problems defying gravity this morning. 

RobotTrader's picture

Dollar is getting smoked.

So is OIH, XLE, and MOO.

GDX looks like it might have topped out.

Robots must be short-circuiting or something.....

SheepDog-One's picture

My physical protection against the paper bonfires such as the US LOLlar are doing great.

Careless Whisper's picture

did u catch some of that downdraft in TZOO and VHC that i turned u on to this morning?


Dick Darlington's picture

"Government guarantees should be explicit and fully accounted for on the government's balance sheet...

Hold that thought and transfer it to Europe. Shitloads of govt guaranteed bank debt has been issued since the start of the crisis and in some countries they still do that (read: Spain et al). Ireland's NAMA ie the bad bank which has sucked tens of billions of rotten waste from the balance sheets of the Irish "time bombs" etc. Where do these show up? Def not on the balance sheets of the respective governments.

Rodent Freikorps's picture

What if they are not as "guaranteed" as many believe?

SqueekyFromm's picture

Yes!!! I remember reading something on Market Ticker about where right of the front page of something, it says this is NOT guaranteed by the government. I will try to find it.

Squeeky Fromm, Girl Reporter 

SheepDog-One's picture

Drowning in an ocean of radioactive paper.

I Am The Unknown Comic's picture

GASP!  Such blashphemy!  Egad!  How dare they speak such things that should not be spoken!  Just wait until Emperor Bernankster hears of this!

notadouche's picture

Where does the IMF get it's funding?

f16hoser's picture

After all the money Bernanke gave them this is the gratitude we Taxpayers get?

Fuck the IMF!!!!!!!!!!! I want my money back!

f16hoser's picture

Correction, I want my children's money back!

MiguelitoRaton's picture

The restriction on assasinating foreign leaders only extends to sovereign countries, right? The IMFers might want to be more careful. If Clinton was still in Office, it would be a done deal by now.