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
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.