Back when James Lockhart was heading up OFHEO / FHFA he once asserted in Congressional testimony that Fannie’s and Freddie’s senior debt enjoyed an explicit guarantee. As I recall (and unfortunately I’ve been unable to dig that one out of the internet memory hole) some incautious staffer at OMB, during the time it took Jim to get back to the regulator from the Hill, said something to the effect that of course if that’s the case then agencies are on-budget. Moments after, the regulator issued a clarification (muddification) that it wasn’t an explicit guarantee, but an effective (meaningless term grasped on the spur of the moment) guarantee. Poor Bernanke was running in circles for weeks afterwards in an effort to stuff that genie back into its bottle.
Now we’ve got to repeat the whole sorry farce in Europe. Expect Autobahn class back-peddling on this one today and tomorrow. The system is presently not equipped for truth in sovereign debt levels. Hat tip ZeroHedge for the dig.
WSJ (8/11: ’10): “German Debt Ratio May Rise To 90% Of GDP On Bank Bailout – Report”
[Die Zeit] based this estimate on a recent decision by Eurostat requiring Germany to include the balance sheets of public-owned bad banks–set up to help financial institutions offload toxic and non-strategic assets–into its overall debt ratio.