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New York Times Editorial
Published: September 13, 2008

Bailout Hide and Seek

On Friday, less than a week after the government took control of Fannie Mae and Freddie Mac, the White House announced that there is no reason at this time to account for the companies in the federal budget.

That is great news for officials who prefer to hide the cost of the bailout since it is due, in large part, to their failure to adequately regulate the financial markets and steward the economy. But it is an insult to taxpayers, whose money is at risk, and it is a reckless gambit.

The Congressional Budget Office reported on Tuesday that the government’s finances are deteriorating rapidly: the budget deficit for this year is expected to reach $407 billion, more than double last year’s shortfall, and to exceed $500 billion in 2009. The takeover of Fannie and Freddie, necessary though it is, will add to the deterioration. Airbrushing that away will only open the door to uninformed — or negligent — decisions on spending and tax cuts.

The White House says that the extent of the government’s control of Fannie and Freddie does not warrant including the companies’ operations in the budget. That is absurd. The government has seized the companies, firing their executives and installing new ones, offering to invest up to $200 billion in the companies if necessary, and most significant, making an ironclad promise to pay their trillions of dollars in obligations, if need be.

The White House also claims that the risk to taxpayers is not yet serious enough to require that the costs be shown in the budget. But there is a very real cost to guaranteeing the obligations of Fannie and Freddie, even if the government never has to cough up a penny. The taxpayer is on the hook while the guarantee is outstanding — and the Treasury says that will last past Dec. 31, 2009, when its bailout authority officially ends.

The Congressional Budget Office has said that it will calculate the cost of taxpayers’ risk and include it in its version of the budget, which is separate from the White House version of the budget.

Having conflicting budgets is hardly a good way to restore confidence in the government’s financial management. But the C.B.O. accounting will prevent the White House from saying, in effect, "yes, bondholders, your investments are fully guaranteed, but you, dear taxpayers, don’t worry, it costs you nothing."

As the government (read: taxpayers) assumes additional risks, it is more important than ever to get the accounting right. Accurately reflecting the budget cost of the Fannie and Freddie bailout would not lead to an explosion in public debt. Prudent accounting, accurately applied, would limit the amount that must be counted against the nation’s overall debt ceiling. Accurately accounting for risk would limit the cost of making good on the companies’ obligations to a figure that reflects the likelihood of taxpayers actually having to pay up.

No one yet knows the ultimate cost of the bailout, but it is already more than zero.