How Big Is It? Bailout of Fannie and Freddie

"Unlimited"--the Treasury Department insisted on that. The only limitation on the size of this bailout, temporarily, is the U.S. Federal debt ceiling. And at the Treasury's frantic demand in July, the Congress raised the Federal debt ceiling, for this purpose, from $9.6 trillion to $10.4 trillion. So this bailout could rapidly use $800 billion of Federal borrowing, raising Treasury interest rates (it's already doing that) and piling on you, the taxpayer, another $40-60 billion a year in Federal debt interest charges. To give one indication of how big it could get, a memo has been recently circulating among economists at the Federal Reserve, according to one source, that warns that the Federal debt could reach $23 trillion by mid-2010, if the unchecked bailout goes forward. That is one warning of how big it could get, but no one can actually place a limit on how big this bailout could be.

There are $7 trillion in mortgage-backed securities (MBS) held by banks, hedge funds, "investors," etc. They are the means by which these investors bought collection rights on risky mortgage by the millions. They could and should be frozen and written off for the duration of the financial crisis; instead, Paulson's Treasury is guaranteeing them at 100% face value. Fannie Mae and Freddie Mac, between them, issued about $2 trillion of these, and bought another $1 trillion from other financial firms.

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Read also "Tantamount to Treason"; Bailout of Fannie and Freddie