U.S. Taxpayers on Hook for $5 Trillion of Fannie, Freddie Debt ... No Matter What Barney Frank Says
House Financial Services Chairman Barney Frank caused a bit of an uproar Friday when he suggested the U.S. government does not guarantee the debts of Fannie Mae and Freddie Mac.
Rep. Frank later recanted and backed a Treasury Department statement reassuring investors that, yes, Fannie and Freddie Mae debt is guaranteed by the U.S. government. "Going forward," he said in a statement, we "will make sure that there are no implicit guarantees, hints, suggestions, or winks and nods...we will be explicit about what is and is not an obligation of the federal government."
But after years of winks and nods, there's no doubt that Fannie and Freddie now enjoy anexplicit guarantee, according to most observers. The U.S. government placed Fannie Mae and Freddie Mac in conservatorship in September 2008: "This means that the U.S. Taxpayer now stands behind $5 trillion of GSE debt," according to the Congressional Research Service.
The problem is that $5 trillion of so-called agency paper is not treated as if it is a debt of Uncle Sam for accounting purposes, says Richard Suttmeier, chief market strategist at Niagara International Capital and ValueEngine.com.
"Get it on the balance sheet - that's where it belongs," Suttmeier says. "Add it to the $14.2 trillion in [federal] debt and let's move on."