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. OMB officials believe that across the government, overestimates and underestimates tend to cancel out over time; their internal review of two decades of credit costs found the original budget estimates were off by just 0.17 percent overall. S. finances rebounded quickly, and today the deficit is already back down to pre-crisis levels.
Buddy, Can You Spare a Loan?
Student loans and mortgage guarantees make up two-thirds of all federal credit, but there are 120 different loan programs serving a motley assortment of beneficiaries.
Fishing quotas The National Oceanic and Atmospheric Administration has a $100 million loan program to help fishermen buy or repair vessels, plus a similar $24 million program reserved for the Northwest Halibut/Sablefish and Alaskan King Crab fisheries.
USDA has more credit programs than any other Cabinet agency
Sugar farmers Sugar farmers already benefit from generous federal price supports, but they can also borrow money from the U.S. Department of Agriculture to store their harvest until prices get better. Sugar gets singled out for its own $20 million loan program, but there’s a similar $300 million storage loan program for other farmers.
Boll weevil eradication The boll weevil is already mostly eradicated in the United States, but the feds still have $60 million in outstanding loans to help cotton farmers get rid of the beetles.
Washington is increasingly nervous about the explosion of student debt, which has tripled in a decade and now exceeds credit card or auto debt; the rising default rate, now 18 percent overall and nearly 50 percent for two-year for-profit programs; and the damaging effects on younger Americans, who often find themselves drowning in red ink without a diploma or a job to show for it. The Obama administration has tried to give them a break, in part by allowing some overstretched borrowers to reduce their payments based on their income, even forgiving some loans after 10 or 20 years. But the credit hawks say the administration is hiding the fiscal costs of its generosity, continuing to project more than $15 billion in annual profits from student loans. A report by Barclays Capital analyst Cooper Howes concluded the program is more likely to incur well over $10 billion per year in costs. That’s a major discrepancy, equivalent to almost the entire federal budget for fighting AIDS-and more than the budget for Pell Grants for low-income students, a program many experts consider more effective than loans at easing the soaring cost of college.