Fannie Mae/Freddie Mac

Wednesday, September 10, 2008

The Congressional Budget Office (CBO) is the group of accountants that has to try to make sense of the mess in Washington. They are about as non-partisan as a group in Washington can be. The have put a price tag on the government bailout of Fannie Mae and Freddie Mac. Are you sitting down? $5.4 TRILLION dollars. Yeah, on top of the $10 trillion we already owe.

The following information is from this article: http://www.ft.com/cms/s/0/e30472a6-7e79-11dd-b1af-000077b07658.html

"Peter Orszag, CBO director, said: 'It is the CBO view that Fannie Mae and Freddie Mac should be directly incorporated into the federal budget.'"

Okay, the numbers are enormous and the taxpayers are going to have to pick up the tab. So, what else does it mean. It means the United States, forever the most stable, solid, consistent, financially stable government in the world, just got demoted.

"The price of credit default swaps on five-year US government debt hit a record 18 basis points in early trading, according to CMA Datavision. This means that it costs $18,000 a year to buy insurance on $10m of US government debt."

I know most of you are saying, "What?"

"Tim Backshall, chief strategist at Credit Derivatives Research, said the price implied that the US was more likely to default on its obligations than Japan, Germany, France, Quebec, the Netherlands and several Scandinavian countries. Traders said the CDS market for US debt was illiquid and it was hard to see evidence of increased concern over US creditworthiness in broader market prices." (Emphasis mine)