So, Do We Own Fannie And Freddie, Or Not?

As reported at the WSJ, the assets and liabilities of Fannie and Freddie will not be placed onto the federal books for now, even after the recent takeover by the government. This decision seems odd given that one of the main reason for the takeover was to instill confidence that the government was there as a backstop. Even CBO director Orszag thought that both companies should be incorporated into the federal budget. Given that it is an election year, it is not surprising that Washington would not want increase the size of government, or at least the appearance of doing so. The reason given for keeping Fannie and Freddie off the budget is apparently the need to take "... into account the degree of federal control of the companies, the economic risk to the taxpayer, and the temporary nature of the government's arrangement with the companies." Yet, the federal budget has always considered revenue and outlays of various programs and activities that the government has some control over, even if they do not run them directly.

So in the mean time, both Fannie and Freddie will have their combined $1.5 trillion of debt placed in a separate category and not added to U.S. publicly held debt - kind of like a Special Purpose Vehicle for taxpayers. Now if we can only get the companies moved to the Cayman Islands, maybe we could also reduce our tax burden. Then again, pledging up to $200 billion of capital for $1 billion in equity may generate a tax loss savings in the future, so maybe we should keep our options open. Of course, with both hands in the cookie jar, this may end up being nothing more than just another case of robbing Peter to pay Paul. I just haven't figured out which one I am yet (but I have a good guess).