How to Hide Billions in Taxpayer Money and Get Away With It

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Photo: Emily Metcalf

Spine-tingling TV shows and movies are always featuring spy capers that are “off-book.” Their existence is on a need-to-know basis, and sure, they’re being funded, but no one sees where that money’s going.

There’s a very real, very expensive—and a lot less thrilling—off-book operation going on in Washington.


The Treasury is keeping Fannie Mae and Freddie Mac, the taxpayer-backed loan guarantee giants, off the federal budget.

How is this possible?

In 2008, the government took control of Fannie and Freddie and agreed to shield the entities from bankruptcy. Now that the country has recovered from that housing crisis, and money is coming back in through these government-sponsored entities (GSEs), their true cost remains hidden.

“The GSEs’ off-budget status excludes them from federal budget rules and processes, and hides the real cost to taxpayers from federal control over Fannie and Freddie,” explains Heritage’s Romina Boccia in a new report.

It’s jaw-dropping that such massive flows of taxpayer money could be kept outside the federal budget. And as you can imagine, keeping that cash off the books distorts the overall budget picture.

Just for a start, the housing entities’ “profits paid to the Treasury in 2013 alone have resulted in federal spending and deficits being underreported by more than $100 billion,” says Boccia, the Grover M. Hermann Fellow.

This affects public perception of the deficit—and even lawmakers’ perceptions as they make plans to spend more in the coming year’s budget.

“Lower reported spending and deficit figures are encouraging lawmakers to increase spending and neglect entitlement reform,” Boccia says.

But the picture is indeed false. The U.S. economy does not need Fannie and Freddie as their boosters suggest. They are a vehicle for corporate cronyism and have not helped homeownership rates or interest rates in America.

If they were eliminated, the deficit would appear to go up—but only because the real deficit has been obscured by this influx of money during the GSEs’ more profitable years. Boccia explains that, “were Congress to eliminate Fannie Mae and Freddie Mac effective in 2014, the budget would record an $81 billion increase in spending and deficits.”

As we saw in the housing crisis, Fannie and Freddie are not always profitable—that’s how the government ended up taking them over in the first place. And that takeover put taxpayers on the hook not only for past mistakes, but for guaranteeing current and future loans. At this stage, taxpayers are ultimately responsible for the nearly $4 trillion in GSE guarantees. (For perspective, see: How much is $1 trillion?)

Yes, the GSEs need to be eliminated. Before that happens, more people will need to see the full liability they create. Boccia says:

Putting the GSEs on budget would show taxpayers and Congress that Fannie Mae and Freddie Mac impose a real cost on taxpayers and that eliminating the GSEs would improve federal finances. Proper accounting of the GSEs’ impact on the federal budget is an important step toward their—very necessary—elimination.

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