A new proposal by House Republicans, lead by Rep. Scott Garrett (R., N.J.), is seeking to address changes to Fannie and Freddie accounting, along the lines of what has been previously proposed by Zero Hedge, and to not only include the GSE's losses as part of the Federal budget, but to also count the debt from the two mortgage zombies toward the nation's total statutory debt limit. As we stated previously, it is only semantics at this point which distinguish the GSE obligations from other Treasury obligations. Yet it is not just us, but the administration's very own Peter Orzsag who was pushing for consolidated GSE accounting two years ago. Yet with GSE debt most recently at $6.3 trillion, or about half of the existing Treasury debt, this would mean total US debt would not only explode by 50% overnight, but the recently increased debt ceiling would be immediately breached and America would find itself in technical default (where it really is right now for all technical purposes).
Dow Jones has more:
A memo written by Garrett's office, which was released Monday, states that "now that the federal government has explicitly backed the operations of the GSEs, there should no longer be a distinction between their debt ... and the debt issued by the Department of the Treasury."
The proposed legislation highlights the current uncertainty surrounding the two firms, which have been under government control since September 2008. Federal officials were expected to provide some guidance as to their future plans for Fannie Mae and Freddie Mac in the fiscal 2011 budget released earlier this month, but that information wasn't included.
The Office of Management and Budget, which compiles the White House's annual budget request, did acknowledge in the budget the different ways the government currently accounts for the two firms. The Congressional Budget Office accounts for the two firms "on budget," treating them like any other federal agency. OMB, meanwhile, treats them "off budget," considering them to be private companies.
As we observed some time ago, "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." Luckily, there are people like Garrett to remind Obama and his henchmen that not every person in America is a zombified purchasing cretin with 10 credit cards and a limitless Centurion in the mail, who couldn't care less about America's sovereign default until 3 days after the fact. Oh, and Garrett's action also means that should his proposal be enacted (slim chance, with such WallStreet-based enablers as Summers and, ironically, Orzsag, the ultimate decision makers), then the US Debt/GDP just shot up from under 90% to over 130%. Which it really is currently, for all intents and purposes. Except, of course, for the saving grace of the dictionary entry for what "full faith and credit" of a bankrupt country really means. Pop quiz: what is the full faith and credit of a bankrupt entity?
And just in case you were confused, and have yet to recognzie the idiocy of the OMB, and the ruling class in general, here is a paper written in 2002, in which authors Joseph Stiglitz (a Nobel winner no less), and Jonathan and Peter Orzsag, whose opinions rotate by 180 degrees more often than a magnetic needle above true north, claim the following OMB-referential piece of unparalleled garbage:
Interestingly, however, the Office of Management and Budget tested Fannie Mae’s and Freddie Mac’s capital adequacy in the early 1990s by subjecting their business activities to a ten-year stress test that simulated the financial and economic conditions of the Great Depression. The test showed that if a Depression lasted ten years, given 1990 levels of capital, both Fannie Mae and Freddie Mac had sufficient capital to survive. This result led OMB to conclude that in the event of a severe nationwide economic downturn, the probability of either Fannie Mae or Freddie Mac defaulting would be “close to zero.” This implies that if Fannie Mae and Freddie Mac hold sufficient capital to withstand the riskbased capital scenario, they would likely fare well under any conceivable economic environment.
Ah, the OMB, which less than 10 years ago said the probability of a GSE default was close to zero. With such lunatics in charge of making the decision of whether the GSEs should or should not be considered Treasury debt, can we please just fast forward 10 years to the post nuclear war holocaust already. The constant barrage of daily bullshit is really getting tiring.