Remember when your liberal friends used to writhe on the floor in a foaming rage?  They were outraged because the Iraq War never got into the federal budget, but got slipped in through the back door with “supplemental appropriations.” 

Now there’s a new game in town.  Advanced conservatives are going to class to learn how to throw themselves on the floor about the losses at the government’s mortgage giants, Fannie and Freddie: $400 billion and counting.  Now that these GSEs are flat broke, why doesn’t the president add the $5 trillion in Fannie/Freddie mortgage-backed debt in the National Debt, they ask?

This Monday, February 1, the president published the federal budget for the fiscal year 2011 starting October 1.  In that budget the feds will account for the bailout of Fannie and Freddie.  But the cost will not appear in the headline number of $3.8 trillion in spending.  Instead, Obama’s guys will sneak it into the outlays for the recently concluded FY 2009.

The only place you will be able to see what really happened will be usgovernmentspending.com, which is not a government website.

Our noble rulers have developed not one but two plausible narratives to account for Fannie’s and Freddie’s losses at the real-estate casino.  There’s the Congressional Budget Office (CBO) version.  And there’s President Obama’s Office of Management and Budget (OMB) version.

The cunning rascals aren’t going to chuck an indigestible $400 billion loss into the budget.  And they aren’t going to stack the GSEs’ debt into the National Debt.  Oh no.  They are too smart for that.

The CBO, in its August 2009 baseline,  began to treat Fannie and Freddie’s operations for the first time “as if they were being conducted by a federal agency” rather than a private corporation.  They have estimated that Fannie and Freddie added $291 billion to Federal Outlays in FY 2009.  And CBO has estimated $99 billion in spending on Fannie and Freddie for FY 2010 through 2019.  That comes in just a little shy of $400 billion.

Not surprisingly, the president’s OMB has found a less costly way of accounting for the Fannie/Freddie debacle.

At OMB they have computed the cost of the Fannie/Freddie bailout merely from the actual cost of buying preferred stock from the mortgage giants.  In FY 2009, writes the CBO director, the “Treasury provided a total of $95.6 billion in cash outlays to the two entities” for the purchase of preferred stock and warrants to buy common stock.  So that is what OMB put into its “final report of spending for 2009.”

For the future, OMB estimates a further $65 billion in outlays to support Fannie and Freddie in 2010-2019.

Frankly, I’m shocked. 

Leaving aside the minor difference of $229 billion in accounting between CBO and OMB, I’m surprised that the cost to the federal government of righting Fannie and Freddie is so low. 

In fact, if I were a politician on the way up, a young version of Sen. Chris Dodd (D-retiring) or Rep. Barney Frank (D-unashamed), I would say, as Barney Frank said back in 2003, that it was time for the government to roll the dice.

I do think I do not want the same kind of focus on safety and soundness that we have in OCC [Office of the Comptroller of the Currency] and OTS [Office of Thrift Supervision]. I want to roll the dice a little bit more in this situation towards subsidized housing. . . .

Why not?  If the only cost to the federal government of offering affordable housing to millions of impressionable voters is a mere accounting item of two to three percent of GDP once in a generation, what’s not to like?

But wait, you say!  What about the cost of all the Fannie/Freddie debt that the Federal Reserve System has bought up in the last year?  What about the cost of all the banks that the FDIC has taken over?  You are right; the costs will be substantial.  But they aren’t budget costs.  They aren’t appropriations.  They are insidious costs that will diffuse through the economy as inflation and as increased banking fees.  How do you explain that in a campaign commercial?

But I am not discouraged.  I have faith in the new generation of independent conservative politicians.  Someone, a Palin or a Brown, perhaps, will figure out how to frame the Fannie Freddie issue and turn it into a “death panel” for our Democratic friends.   Pat Buchanan said it best back in August:

Of Sarah Palin it may be said: The lady knows how to frame an issue.

Of Sen. Scott Brown (R-MA) the same may also be said.  Maybe that’s the big difference between a populist like Palin or Brown and a populist like President Obama.  One kind knows how to frame an issue.  The other kind knows how to strike an attitude.

Christopher Chantrill (mailto:chrischantrill@gmail.com) is a frequent contributor to American Thinker. See his roadtothemiddleclass.com and usgovernmentspending.com.  His "Road to the Middle Class" is forthcoming.