CBO Estimates Fannie/Freddie Problems Will Cost Taxpayers $83 Per Person

The Congressional Budget Office released a letter today and outlines the probable cost of fortifying and keeping Fannie Mae and Freddie Mac solvent.

The Congressional Budget Office released a letter today and outlines the probable cost of fortifying and keeping Fannie Mae and Freddie Mac solvent. The projected cost, $25 billion or $83 for each of trhe 300 million people in the United States.  A family of five would be on the hook for $425.  As the CBO says in its letter.

The Congressional Budget Office (CBO) estimates that there is a significant chance—probably better than 50 percent—that the proposed new Treasury authority would not be used before it expired at the end of December 2009. If the proposal is enacted, private markets might be sufficiently reassured to provide the GSEs with adequate capital to continue operations without any infusion of funds from the Treasury; during that time, it is possible that expectations about the duration and depth of the housing market downturn may brighten. Under that scenario, the temporary authority would not be used and thus would involve no budgetary cost.

In CBO’s view, however, that scenario is far from the only possible result. Indeed, many analysts and traders believe that there is a significant likelihood that conditions in the housing and financial markets could deteriorate more than already reflected on the GSEs’ balance sheets, and such continuing problems would increase the probability that this new authority would have to be used. Taking into account the probability of various possible outcomes, CBO estimates that the expected value of the federal budgetary cost from enacting this proposal would be $25 billion over fiscal years 2009 and 2010. That estimate accounts for both the possibility that federal funds would not have to be expended under the new authority and the possibility that the government would have to use that authority to provide assistance to the GSEs."

Note that the CBO is also planning for continued problems in the housing markets.  Good move.

Sam Cass
Sam Cass: Sam Cass, MBA, JD, University of Texas at Austin. Always a fan of Leonardo Da Vinci.

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