I Told You So uh sort of

The latest estimates of the cost of bailing out Fannie Mae are dramatically lower than previously reported estimates.

Because of accounting rules, Fannie and Freddie would be forced to recognize the increase in value as profit — and turn it over to taxpayers. Fannie has suggested that might occur this spring — and said it could turn over about $60 billion. Freddie appears to be behind in the process.


I don’t understand the actual issue “tax assets” but still claim I, more or less, told you so (maybe more less than more as those posts are about TARP but the issue is similar).

The key point is that Fannie Mae will transfer $60 billion to the Treasury but this won’t make another bailout necessary.  The reason is that, in normal times, Fannie Mae gets a normal return on its assets.  Such a return is much higher than the rate the Treasury pays.

The cost of bailouts was, by law, adjusted for risk so, unlike everything else, it wasn’t evaluated at the expected effect on the national debt after 10 years but rather that effect plus an additional cost from the Treasury bearing risk.  There is no good reason to count this cost. There is a very strong bad reason that if it weren’t required some people would write that the Treasury could eliminate its  debt problem by selling more bonds and buying equities.

I write that already.

To be Frank (and Sloan and Quiggin) the determined effort to hide the fact that partial public ownership of the means of production would be a trillion dollar better than sure thing caused absurd estimates of the cost of bailouts.

The main point of the article is that, since the net debt was foolishly over estimted, Republicans won’t be able to play debt ceiling chicken for a few more months.  But it also shows, again, how public ownership of risky assets makes the country richer as they are worth more to the federal government than to any other entity.