Obama Administration Using Accounting Gimmicks That Would Make Enron ‘Blush,’ Says Republican Lawmaker

fannie-mae
Fannie Mae headquarters in Washington, D.C
.

(CNSNews.com) – Rep. Jeb Hensarling (R-Texas) says the Obama administration is using an accounting “gimmick” in its budget by not including the debt owed by mortgage firms Fannie Mae and Freddie Mac.

“The accounting gimmicks that are used today would make an Enron and WorldCom accountant blush,” Hensarling told reporters. “The American people know that under the policies of this administration-under the policies of this Congress-we are drowning in a sea of red ink.”

Hensarling, a member of the House Financial Services Committee, joined a group of House Republicans Tuesday in announcing the introduction of a bill that would require President Obama’s Office of Management and Budget to include the liabilities of Fannie and Freddie in the national debt calculation.

The two companies are defined as government-sponsored enterprises (GSEs) whose portfolios include trillions of dollars in American mortgages, many of which are now “under water.” The federal government took control of the mortgage giants in 2008, as they neared financial collapse.

Billions of taxpayer dollars ($61 billion for Fannie Mae and $51 billion for Freddie Mac) has been spent so far to keep the GSEs solvent. Just this week, Freddie Mac reported a $7.8 billion loss in the final three months of 2009, but said it will not require another taxpayer infusion at this time.

Hensarling on Tuesday suggested that the administration is under-reporting the nation’s debt by failing to account for the potential liability incurred if Fannie and Freddie go deeper into the red.

The potential liabilities incurred by Fannie and Freddie, Hensarling said, would amount to “the mother of all bailouts.”

freddie-mac
Headquarters of the federally chartered mortgage giant, Freddie Mac, in McLean, Va.

“When the final chapter is written on the history of our financial debacle, it will show that the cause was the government policies that cajoled, incented (sic) and mandated financial institutions to lend money to people to buy homes that, ultimately, they could not afford,” Hensarling said. “At the epicenter of those federal policies was Fannie Mae and Freddie Mac, and before all the dust settles in the final accounting, they will prove to be the mother of all bailouts.”

Rep. Spencer Bachus (R-Ala.), the ranking member of the House Financial Services Committee, estimated that the unfunded liabilities of Fannie and Freddie could exceed $5 trillion.

Under Republican’s proposed bill, the White House Office of Management and Budget would have to treat the GSEs’ estimated liabilities as part of the federal debt, and those liabilities along with the rest of the debt would have to remain under the debt ceiling.

Congress recently voted to raise the debt ceiling above $14 trillion dollars for the first time to accommodate other spending.

“The president has often spoken about accountability and transparency,” Hensarling said. “This is an opportunity to engage in the deed as opposed to words to actually achieve that, and I would hope…that this legislation wouldn’t be necessary-that the president would direct the Office of Management and Budget to have honest accounting for the American people about the amount of debt that is attached to Fannie Mae and Freddie Mac.”

The bill – the Fannie Mae and Freddie Mac Accountability and Transparency for Taxpayers Act of 2010 — specifically directs the inspector general of the Federal Housing Finance Agency to submit quarterly reports to Congress during the conservatorship of the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac).

Each report would have to include the dollar amount of the GSEs’ total liabilities, with “a detailed breakdown of the potential level of risk to the Federal Government” and an explanation of how the risk to the federal government has changed from the previous reporting period.

The report also would have to include an explanation of all compensation and bonuses paid to Fannie and Freddie executive officers, among other items.

Treasury Secretary Tim Geithner told the House Budget Committee on Wednesday there’s no need for such reporting requirements:  “We do not think it is necessary to consolidate the full obligations of Fannie and Freddie onto the nation’s budget,” Geithner said.

In addition to comparing the administration’s budget to the manipulated Enron balance sheet, Hensarling said the United States was heading down the same path as Greece, which now needs financial assistance from other European Union members.

“In fact, if you look at the rules of the E.U., when you look at our debt-to-GDP ratio-our deficit-to-GDP ratio, using our honest accounting, we couldn’t even get into the E.U. Now why are E.U. countries getting into trouble? Because of accounting gimmicks that they used to trick their people.”

H.R. 4581, the Fannie Mae and Freddie Mac Accountability and Transparency for Taxpayers Act, has been referred to the House Committee on Financial Services. In a Democrat-controlled House, it is not expected to advance.

Thursday, February 25, 2010
By Christopher Neefus

Source: CNS NEWS

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