Obama's Budget Has One Small, Missing Piece.... For $6.3 Trillion Dollars

Tyler Durden's picture

Today, to much fanfare, the administration released its ridiculous $3+ trillion budget (we say + because at that size the one thing certain is that the budget will certainly never hit the target and while we wish it would be lower, we are certain it will end up materially higher), which consists of a "short" 192-page summary section and a 1420 page appendix. We are confident that not one politician will read the whole thing from cover to cover. We won't either. Not because we don't care about what's in it, but because we are much more concerned with what is not included, namely $2.8 Trillion and $1.9 Trillion of MBS guaranteed portfolios at Fannie and Freddie, and an additional $782 billion and $809 billion in company debt outstanding for the two GSEs, respectively. This amounts to a total of $6.3 trillion in liabilities which should be counted toward the budget. And yet, oddly, the error-checker somehow made this rather justifiable omission: after all if we were to look at a number which written out looks as follows $6,264,000,000,000.00, we would also probably just avoid it - it is somewhat difficult to hide a number that big even in the 1,420 pages of the budget's appendix. That's ok, we are here to remind them about the omission, and also to remind Mr. Orszag, who himself, in that long ago 2008, espoused that these companies should be put on the Federal Budget. Isn't it strange what one and a half years worth of realizations just how broken beyond repair the system is, will do to one's convictions?

Let's remind our readers of what then-CBO director Peter Orszag said on September 8, 2008, at the press conference announcing the conservatorship of the bankrupt mortgage titans. Below we transcribe the relevant Q&A:

QUESTION:  (OFF-MIKE) completely incorporated into the federal budget?

ORSZAG:  What I— what I said was it is our view that at this point
they should be incorporated into the federal budget, that we intend to
do that in our January baseline and that with regard to the budget of
the United States,
which is put together by the administration’s Office
of Management and Budget, that—the treatment therein will obviously be
up to OMB, but it is our hope that working with the budget committees
and OMB we can have a consistent treatment between our baseline and
their budget.

QUESTION:  This may be a little repetitive, but can you give—and
if—if you do what you just said you would do, incorporating the
mortgage companies into the federal budget directly, can you estimate
at all the impact on federal receipts and federal outlays?

ORSZAG:  I don’t—I could but I don’t want to. And the reason is
that—is that again that can depend very sensitively—there is a lot of
mortgage-backed security activity, and it can depend a lot on how this
tension between whether if you buy a hundred-dollar’s worth of
mortgage-backed securities that is scored as a hundred dollars in
spending or whether that’s evaluated at its subsidy value, the numbers
can be dramatically different
. So I’m—until we reach judgment on, in
particular, that issue but a few others, it’s premature for me to give
you the raw (ph) numbers.

Christian (ph) and then (inaudible).

QUESTION:  Sure, but just in a conceptual sense, though, you are
ruling that—that Fannie and Freddie are now part of the public sector.
They’re now part of the government. They are in effect nationalized.

ORSZAG:  We are saying that the degree of control exercised by the
federal government over these entities is so strong that the best
treatment is to incorporate them into the federal budget.

Alas now-White House budget director is singing a radically different tune. According to a statement from the administration: "The administration continues to monitor the situation of the GSEs
closely and will continue to provide updates on considerations for
longer-term reform of Fannie Mae and Freddie Mac as appropriate." We hope this update will come at least a few days before America files for bankruptcy. Oh, and what is this difference in MBS scoring between "spending" and "subsidy value." Could we maybe please got some color on which of these two concepts applied to the nearly $100 billion in MBS sales initiatied by Bill Gross, with the US taxpayer as an unwitting buyer.

As there may have been some confusion as to the magnitude of the numbers we are discussing here, we are providing a break down of total GSE debt introduced just a few days ago by Neil Barofsky.

As readers can see, we are not talking about just any paltry amount: the most recent US total debt balance was $12.222 trillion. It would seem a little presumptuous that an amount representing more than half of the total US sovereign debt is conveniently swept under the rug.

And with the omission from the Federal Budget, America's population once again has absolutely no visibility into the real fiscal costs associated with the government's support for the Debtor Nation Sponsored Entities (aka DeNSEs). Not only that, but at some point we really should have a discussion over just what the delicate transition from the existing "conserved" [sic] status to a full nationalization and permanent US debt onboarding. Because otherwise the ignorant morts may think that the Federal Reserve was responsible for purchasing just $300 billion worth of US debt, when in reality, courtesy of what should have been a Budget liability, the Bernanke policy will have been responsible for purchasing essentially $1.7 trillion worth of US securities. And the whole MBS-UST rotation by China, PIMCO and everyone else who was clever enough to hold the worst possible security around, would just have been a little more formalized than assorted discussions in the fringe media.

Luckily for the administration, today's budget provided absolutely no color, and further confirmed that Orzsag is nothing but a pure-blood hypocrite who says whether is suitable for the occasion. Seeing how the Volcker plan is about to be retracted, we reserve judgment for the President until such time as he formally announces his prop trading ban was simply the result of an HFT algorithm gone amok in his telepromter. But we digress. As for the whole "GSE-reform" thing, the administration will do it soon. Not today... But soon. After all: what is 40% of GDP? Bernanke can print that in like 2 days.

What we do know, is that recently the Treasury formally gave itself unlimited bailout capacity as pertains to the GSEs, once again making the case that in the grand scheme of things Treasury and GSEs liabilities are essentially the same concept. Of course, the public's, media's, and assorted CDS traders' reactions, were they to suddenly uncover that the US debt-to-GDP is actually more like 130% than 90%, would be quite amusing. We also know that by this action the administration has avoided the recognition of about $100 billion in cash outlays compared to the prior CBO estimate. Oh yes, we almost forgot how self-congratulatory the Treasury was when it announced that its January-March and March-June quarter borrowing needs would be lower than expected.

What we definitely know is that we now live in a system where delusion is the norm: we have an administration that willfully and consistently deludes its population from representing just how bad our economic debacle really is, and we have a population, that willfully and consistently is happy to accept lies and delusions from every media and administrative outlet, and in turn deludes the administration that it will pays it taxes, or not walk away from yet another underwater mortgage. Rinse. Repeat.

What we are positive, is that this arrangement of mutual delusion will persist will spectacular success. Until it doesn't.

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deadhead's picture

well, interesting comments by Orszag, no doubt.  

At least on the bright side, David Stevens has assured us that FHA is okey dokey smokey and they will never need any bailout.  I know some have called for an FHA implosion but no need to worry because a U.S. government official has said that the FHA will not implode.

I'm feeling a little more crameresque about the whole housing mess now....

the question i keep asking myself is, at the age of 54, will I see the Minsky moment actually occur or will I be long gone.....

Oracle of Kypseli's picture

Just like every toddler now knows words like micro, nano, giga, terra etc., we will soon have to get used to words like quadrillion, quintillion and say things like: I remember when gold was just $1200 an oz. I wish I had bought some more of it.

So, yes my friend, we will indeed be speaking these words and chances are that somewhere between the words trillion and quadrillion, the Minski moment and "black swan" will also become an everyday word.

If you were to google these words every Sunday morning and chart how many hits you get on a weekly basis, you will soon see an exponential trend.

That may be a good way to see the future.

Just now:

Minski moment 593,000 hits

Black swan 12,200,000 hits

Trillion 12,300,000 hits

Quadrillion only 401,000 hits








Marley's picture

"We're so screwed its sad." - 12 million google hits.  

"We're so screwed it's sad." - 10 million google hits

Hephasteus's picture

See the people willing to make mistakes in spelling are 20 percent more screwed than the people who aren't.

Invisible Hand's picture

Or, it could be that even people who can't spell can read the writing on the wall.

Anonymous's picture

..... somebody has way too much time on their hands.

WaterWings's picture

Potentially part of their profession. Data miners, for example, could show you a lot of really, really cool stuff it they weren't "State Secrets".

Anonymous's picture

You forget Gaga as in Lady

Anonymous's picture

We'll never make it to quadrillion. It's over before 100 Trillion.

Anonymous's picture

Ah, Orszag...He He He...oh, boy.

jm's picture

What I'd really like to know is how to derive reliable loss severities for that guaranteed GSE paper. 

I mean, everything is so assumption sensitive, and GSE paper has so many moving parts, and which of them can be / are hedged?  And how good is that hedge book?

Don't get me wrong.  I love your site.  It just makes my head swim trying to figure out the "collateral damage".  Pun intended. 


Dburn's picture

The govt accounting system is some strange hybrid of cash and accrual accounting. One example that always struck me was when the social security surplus was spent each year they would take the amount spent and deduct that from the deficit. I suppose thinking that since it was inter governmental and it was surplus, it count as a deduction even though it was spent.

Putting the guarantees in the budget doesn't work until the mortgages default . Even then they won't put it in the budget because no one can project with and certainty the cash out put required to cover the defaults. This is not unusual at all.  If there was a dead certainty that in the next 12 months they had to come up with 6.5 trillion, it would have to go in the budget. Since I don't think that is a dead certainty, it isn't going to show up in the budget.

Anonymous's picture

A very lucid comment by Dburn, afaict. Would that more readers would put on thinking caps before swallowing the thesis of such a story. Thanks.

Anonymous's picture

You are correct, but we can agree that the losses will certainly not be zero - lots more red ink coming!

trav7777's picture

Bama's sendup is only $3.83T.  Once you get some supplementals for war and some pork, it may highside $4T.

This represents $600B over Busch's worst

trav7777's picture

No shit?

I typed Busch because I believe that sums him up appropriately, low rent beer, NASCAR, all of the connotations

Anonymous's picture

Another bailout? Problem solved. Why is ZH and Denninger getting so exited? Another bailout will solve everything. And ZH said it couldnt be fixed. Dow to 15,000

MarketTruth's picture

ZH is telling it like it is. Denninger is still drinking the cool aid and getting too high on his reflection in the mirror. His ego is what it is, fine/whatever, and sometime he makes good points. The problem with Denninger is his continual belief in the religion of the bankster/financial system and in the actual following of the rule of law. Obviously the rule of law left the building years ago. So his religious belief in the system are leading him down the wrong path.

For some reason he still seems to believe the system will be fine provided laws are followed. Perhaps he has not been paying as close attention to the lack of law enforcement, no real moves to follow the will of the people, etc. As such, his advice/comments is based on incorrect parameters.

In other words, he is basing some of his writings on dreams and star dust and not the current market reality. Still, i wish Denninger well and file him under "It seems natual for every little girl to dream of owning a pony."

Fielding Mellish's picture

Everything Denninger says depends on the outcome of the 2010 election.  Now, Senators are so shielded from public opinion and so exposed to money lobbyists, it may make absolutely no difference what happens in 2010.  On the other hand, they love their jobs.

I have a much higher opinion of Denninger than you do, but he may be wrong.

MarketTruth's picture

Election outcomes may make little difference... like Bush versus BHO. As the song goes, "Meet the new boss, same as the old boss". While Americans could wish for real change, other than new 'seat warmers' and perhaps new rhetoric, the REAL outcome will be no different.

Hate to burst dreams and wishes, yet the USA is done and best advice is to make decisions based on reality and not on laws or hoping the new seat warmers 'do the right thing' because 90% of the phone calls they get tell them what to do (read: no TARP, etc).


Roger O. Thornhill's picture

Denninger would be correct in a world, maybe 50 years ago.

Unfortunately we don't have standards like that anymore. My belief is that we have left objective truth (the world of grown up rules) far behind and now live in a world of relative truth (where the kid's wishes make things come true). This childish world is one where you can justify any fraud as long as your intentions are good. 

Maybe the inevitable crack-up will cause us all to grow up. That is change I can believe in.

Anonymous's picture

I got banned by Denninger on his forums in 2008 for continuously mocking all of his "contact your Congressman" nonsense, as if that was ever going to accomplish anything.

Cognitive Dissonance's picture

There comes a point in the insanity when the truth can no longer be hidden. Once this point is reached but the general consensus is that the truth must still not be acknowledged, it is then hidden in plain sight but simply not discussed.

Call it the "crazy aunt May locked in the attic" phenomenon, where every family member knows that aunt May is completely off her rocker and is actually stark raving mad. Because no one (for whatever reason, be it money or shame etc) wants to do anything about aunt May, she is locked up in the attic, out of sight and mind except for each family member, where she is hidden in plain sight and out in the open.

While each family members takes turns bringing food and drink to crazy auntie, laundering her clothes, cleaning her space, changing her sheets, even having conversations with her, no one talks to each other about what they are collectively doing or even why, for to do so would force the family to do something about her.

This behavior, albeit on a less extreme level, is actually quit common in a dysfunctional society and is a measure of the health of that society. If this type of split or separated mind continues for very long, it can actually drive others in the family (and society) into severe mental distress.

This also happens in the general society (consider the children's story about " the King has no cloths" or how we as a society can continue to destroy our environment while doing little to nothing to stop doing so) this dysfunction can lead to violent and unsocial behavior in it's individual members as the stress of the open lie takes its toll. I believe this is one of the reasons behind the rise in school shootings, teenage suicide, a general population becoming increasingly obese at an alarming rate and so on. The signs of general mentally instability is everywhere if you wish to look closely.

But of course, if we aren't going to talk about crazy aunt May locked up in the attic, we certainly aren't going to talk about the metal stress and emotional disorder that the open "secret" is causing among us, now are we?

Anonymous's picture

yep that budget busting debt requiring more
debt in a world where the marginal productivity
of debt is negative is not to be discussed....

you know the deal - don't discuss the imbecility
of that zig-zagging bullet which [wink wink] killed

tell aunt may i said hi....

Winisk's picture

I find it curious that we have moved so far in terms of medicine, technology, and knowledge, yet it seems our collective health and education are trending the other way.  Illiteracy, rudeness, obesity, asthma, depression and a host of other mental and physical disorders are trending upwards. Children are being raised in a toxic environment.  Yes it's polluted, but the conditions to nurture young healthy minds is also lacking as a result of divorces, absent working parents, and stress in the home.  To top it off the enslaving debt being foisted on the children is unconscionable.  Parents should be ashamed. They let their narcissistic attitudes usurp their moral obligation to care for their children.  It's sad to witness the mass delusion.  TBTB can manufacture the numbers to suit their purposes but there is a human cost.  One need only look around to see it.

Commander Cody's picture

Reminds me of the fall of the Roman Empire.

Cognitive Dissonance's picture

It's so much easier to rule a population when "Illiteracy, rudeness, obesity, asthma, depression and a host of other mental and physical disorders are trending upwards."

This is the fatal flaw for the grunts, meaning you and I. As long we refuse to recognize that the people we regularly turn the house and car keys over to are out to screw us, harm us, sicken us, this mess will only get worse.

In order to deny responsibility for running the show, to ignore our own individual responsibility for fixing this mess, we must delude ourselves into believing that the people we do put in charge will be acting in good faith and in our best interest. If this means participating in a mass deception, so be it. Ironically, as this mess gets worse, less and less people will wake up because the problems will become that much more horrifying.

This is a well know form of positive feedback loop know as denial. In fact, the sleeping with desperately fight you and anyone else who tries to shake them awake. The sleeping deep-in-denial population is the best friend of a Fascist and oppressive government. The powers-that-be understand human psychology extremely well. The average Joe is woefully ignorant of human psychology.

We lose. 

Anonymous's picture

why do you think russians had revoliucion in 1917?

Anonymous's picture

That's a pretty fair synopsis of our present situation. The US is, in fact, broke. Not tomorrow, but today, as in, right now. There's no getting around it, but to deny it. Denial is the first stage, right?

ShankyS's picture

Possibly your best post yet. Thanks TD. We're so screwed its sad.

It would seem a little presumptuous that an amount representing more
than half of the total US sovereign debt is conveniently swept under
the rug.


dumpster's picture

trillion here , trillion there .. pretty soon they will be spending real money lol

Anonymous's picture

It's only a rounding error.

OutLookingIn's picture

"A nation is not going mad when it does extravagant things, so long as it does them in an extravagant spirit. But whenever we see things done wildly, but taken tamely, then the state is growing insane..."

-Gilbert Keith Chesterton 1910

QQQBall's picture

Now that is a great and appropriate quote

Anonymous's picture

Correct me if I'm wrong, but hasn't the $6.3 trillion already been spent? Thus, shouldn't it be part of last year's budget? Even then, isn't it more of a reallocation of balance sheets rather than a budget item? Just wondering...

Anonymous's picture

I see the Feds grow a "TARP Inspector General" in 2010 at a mere $25 million ($50 million in 2011).

Low pay by GS standards, but I'm willing to sign up.

Eally Ucked's picture

And you worry about Greece induced Euro crisis? Let's start printing!!!

OutLookingIn's picture

Once everyone realizes that they have been lied to, at which point the governments leadership credibility evaporates - leaving the populace with no jobs, no money, no services, no backstop, no justice, no faith, no hope, and no effective government for 300 million people who are armed to the teeth...


Anonymous's picture

simple cycle - at some point the majority realizes that "they" are laughing at them and not with them and those that still say, a man as underprivileged as we are is representing us realize that their chips taste like shit. I'm not down with Focker, nobody is going to milk me like a cat.

Ravi Batra is a good source for this social trend. We are such a vain society, everything ends and I would argue that there is a peak for everything from a macro perspective - I cant find one thing associated with this piggy empire that hasn't peaked out.

Anonymous's picture

so from an accounting perspective what is the multi-year impact of the 6.3t usd?....is it expensed in one year? i doubt it....is it capitalized? maybe....is loan loss reserves which should be established and if so how much per year? this number needs more analysis....it's not pretty but assuming that it should be expensed next year is nonsense....unless of course there are 6.3t usd in losses expected in one year...

Mr Lennon Hendrix's picture

I am not buying an ipadddddddddddddd.  O.  Buy Silver.

Anonymous's picture

Fook that little cute runt iPad. I am ordering parts to build for myself a last remaining example of a Crossfire gaming computer to take advantage of a dying video game market as I seek to escape a failing society that does not have anything to do when this is all over.

They can take thier iPads and shove it. I build my own, just never heavier than I can physically lift.

Daedal's picture

This reminds me of a co-worker who, when questioned about why his number was off by $10million, responded with: "Immaterial."