The budget proposal continues to keep trillions of dollars in Fannie Mae and Freddie Mac's liabilities off the budget, although White House Budget Director Peter Orszag had advocated putting them on the budget when he was director of the nonpartisan Congressional Budget Office. // Analysts say that fiction — not counting the trillions in outstanding liabilities — cannot be sustained indefinitely. – Reuters1
Ironically, it was just a few hours ago that I fired off a complaint to one of Reuters' financial reporters (not Mr. Daly) that nobody in the MSM seemed to have picked up on this issue, which I think is the most important one facing Administration advisors and policymakers like Paul Volcker. I take back my complaint — way to go, guys 
MORE: my, my, the floodgates do seem to have opened …
BL via BW2
Feb. 1 (Bloomberg) — President Barack Obama’s budget blueprint for the next fiscal year excludes the $6.3 trillion in liabilities of government-controlled Fannie Mae and Freddie Mac and delays for a second time a decision on restructuring the mortgage-finance companies that were seized 17 months ago.
WSJ3 (interestingly, Murdoch's minions are still trying to ignore the debt issue, but the cat is now definitely out of the bag)
The fiscal 2011 budget released Monday contains numerous pages about the two government-sponsored enterprises, including details of the government's effective ownership of the companies since September 2008. But the outlook for the two firms is more murky: Budget documents say the administration is monitoring the two firms and "will continue to provide updates on considerations for longer-term reform of Fannie Mae and Freddie Mac as appropriate."
One should not underestimate the shock-wave that will strike the assumptions of nearly everyone inside the Beltway once, as now seems inevitable, Agency Debt goes on America's balance sheet for the first time since 1968.
…………………
UPDATE (2/2): From the Daily Caller4
An OMB official told The Daily Caller that Fannie and Freddie are treated as non-federal entities and that an estimate of the Treasury’s financial assistance through the Preferred Stock Purchase Agreements (PSPAs) with the entities is accounted for in the budget. While an estimate of their total liabilities — the trillions in mortgage securities they guarantee — is included, it’s considered supplemental information, "not intended to measure the deficit impact."
…………….
From the Seymour Herald5
"The dollar amounts, when looked at in total that are guaranteed in some form or fashion by the U.S. Treasury Department, are in the trillions of dollars, yet this liability will not appear on the balance sheet of the United States government." – U.S. Senator Bob Corker, R-Tenn
————–
[1]: "Fannie, Freddie seen tapping more taxpayer funds", by Corbett B. Daly, Reuters, February 1, 2010.
[2]: "Fannie, Freddie Kept Off Budget, Dividends Counted", by Dawn Kopecki Bloomberg / BusinessWeek, February 1, 2010.
[3]: "Plan For Fannie, Freddie Remains Elusive As Budget Released", by Darrell A. Hughes and Michael R. Crittenden, Wall Street Journal, February 1, 2010.
[4]: "Record White House budget deficit omits trillions in Fannie and Freddie liabilities", by Aleksandra Kulczuga, Daily Caller, February 2, 2010.
[5]: "Corker: Reform of Fannie and Freddie should have been in the President's budget", Seymour (TN) Herald, February 2, 2010.
Good catch. After a while the numbers get so big I wonder if they even matter anymore?
GYSC -
It may be a big fish, but I've been stalking it for more than 7 years. The national debt of the United States is a ludicrous number, but because bureaucrats plug that number into their spread-sheets the prospect of doubling it will have real consequences.
When the costs of the Vietnam war became unbearable in 1968, President Johnson did exactly what Enron did decades later. He took a great pile of dodgy assets (the great pile of conforming 30-year mortgages that FDR had originally made government liabilities starting in the Great Depression) and put them all into a special purpose vehicle (the quasi-privatized Fannie Mae) which he then pretended was "bankruptcy remote" from America, although the holders of Agency Debt never believed that codswallop for a second. The words "that fiction" in the above Reuters article is, I believe, the first public acknowledgment of that little joke in 42 years.
Fannie Mae itself played "pass the packet," selling the same assets into QSPEs (exact same acronym as Enron used) now owned by counterparties that, it turns out, never existed. What's worse, essentially every large financial services firm everywhere has been doing exactly the same thing, so at base the Panic of '08 is nothing more complicated than a "1,000 Enrons Problem." WaMu was calling the things "Early Purchase Facilities", but I expect just about everyone had their own house-brand of SFAS 140 abuse.
My interpretation of the great bear rally of '09 is that when the Treasury and the Fed saw that essentially all of the banks were severely undercapitalized they let a few traders (Goldman & friends) use their "market making" privileges and HFT / CoLo to rig the casino and shake the money tree consisting of, basically, the entire Baby Boom's life savings (mutual funds & pensions & insurance) and suck that money into the project of recapitalizing the insolvent financial services industry. It might even have worked if Goldman hadn't over-greeded.
I think it's a comment on the bizarreness of the universe that the single most important circumstance that led to our understanding what was happening was Elina's and Serge's love of ballroom dancing.
John,
great points indeed. I never got he whole "bad bank" vs. "good bank" thing. It is now clear the PPIP was a scam as well as mark to myth. I have a graph up tonight that I came across that makes the mortgage debt issue crystal clear, take a look or here is the original:
http://newobservations.net/2010/01/27/property-values-projected-to-fall-12-percent-in-2010/
look at "Mortgage Bubble Lags Property Bubble" and see the mess.
GYSC -
Sorry, I'm just stunned with all that's happening. Did you ever see my 06 Apr 2009 satire "Crack of Doom: PPIP Passes"? I've put your latest on the sidebar, but can hardly do it justice this evening.
Of all the amazing things that have gone down in the last 48 hours, the most amazing to me is the realization that at the present time the world's greatest brass player is a 15-year-old girl. (I played horn pretty seriously once, and my greatest unrealized ambition is to one day sit in with our local symphony without embarrassment, even as 4th.)
John – great posting and comments.
Thank you!