Could Fannie and Freddie Add $5 Trillion to U.S. Debt?

In 2003, Rep. Barney Frank (D-MA) famously denied that “the Federal Government is obligated to bail out people who lose money in connection” with Fannie Mae and Freddie Mac: “There is no guarantee, there is no explicit guarantee, there is no implicit guarantee, there is no wink-and-nod guarantee. Invest, and you are on your own.”

We now know that Rep. Frank was either ignorant or lying, but are most Americans aware that the U.S. government is now responsible for all of Fannie and Freddie’s financial obligations, and that these obligations amount to nearly $7 trillion worth of debt and guarantees?

The mainstream media typically represents the bailout of Fannie and Freddie as a relative bargain, costing the Federal government “$130 billion and counting” as of 2011 (NPR) and a decade from now perhaps only “$28 billion” (The Economist). Yet these figures only represent the amount of money the Treasury has invested to keep Fannie and Freddie solvent, minus the profits the GSEs have paid back to the Treasury. They do not include the financial obligations of the GSEs, for which the U.S. government is now entirely responsible.

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