Take the FHA. It tripled its loan portfolio to $1 trillion after the private mortgage market collapsed, exactly as it was created to do during the Depression, and its defenders have argued that its $1.7 billion Treasury bailout was a tiny price for taxpayers to pay to keep credit flowing during another epic housing crisis. But that well-publicized $1.7 billion figure ignored tens of billions of additional dollars in unpublicized budget re-estimates after FHA mortgage losses repeatedly turned out worse than expected. Re-estimates don’t require a public announcement or a congressional appropriation; agencies just use what’s known as their “permanent indefinite authority” to stick the shortfalls on the government’s tab. “That’s real money!” Criscitello says. “They forecast bogus profits every year, and when it turns out they’re way off they just say, ‘Oh, well.’” Re-estimates of FHA losses have produced $73 billion worth of “oh, well” since credit reform, most of it since the housing bust. That still might be a reasonable price to pay, but it is certainly not a tiny price, amounting to nearly one-sixth of the current budget deficit.
“The government accounting is unfathomable. I never saw anything like it as a banker,” says former Capitol One chief financial officer Gary Perlin, who served as an adviser to the Obama Treasury on risk management issues. “It’s just: ‘Gee, we thought it would cost X, but guess what, it cost more. Oh, well.’”
Of course, budget costs can be re-estimated down as well as up. The $700 billion Wall Street bailout had such success reviving banks that almost all of the firms quickly repaid their money with interest-and ended up producing unexpected profits for taxpayers. Continue reading “Even after the spike in government credit and defaults during the financial meltdown and subsequent recession, U”