Russell and Duenes

Fanny and Freddie’s Debt Belongs to the Taxpayers. Just Don’t Tell Them!

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Treasury Secretary Timothy Geithner says that the debt obligations of the “Government Sponsored Entities” (GSE’s), Fannie Mae and Freddie Mac, should not count toward the total debt of the Treasury’s balance sheet. He said, “The corporate debt of the GSEs is not the same as U.S. Treasury’s, nor should it be considered sovereign debt.” But he also added, “In conjunction with the Treasury’s commitment to supporting the GSEs while in conservatorship, it should be clear that the government is committed to ensuring that the GSEs have sufficient capital to perform under any guarantees issued now or in the future and the ability to meet any of their debt obligations. The Administration will take care not to pursue policies or reforms in a way that would threaten to disrupt the function or liquidity of these securities or the ability of the GSEs to honor their obligations.” In other words, the taxpayers are kinda, sorta on the hook for the debt obligations of Fannie and Freddie, but officially, according to the Treasury’s books, we’re not. Better to keep such debts off the record. Yet, as The Wall Street Journal correctly notes, “The larger issue is the integrity of the national balance sheet. As government spending soars, the political temptation to use off-balance-sheet vehicles of various sorts will only increase.” Oh, and how much is the balance sheet obligation of Fannie and Freddie? Somewhere north of $5 trillion dollars.

HT: David Bahnsen, Reuters



Written by Michael Duenes

April 10, 2010 at 11:01 pm

Posted in Duenes, Economics

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