The Congressional Budget Office announced its findings on the Congressional housing legislation set for a reluctant vote this week. While the CBO had previously estimated that the housing package would earn income for the government, their estimates have changed to a whopping $25B price tag for the federal government over the next two fiscal years.
Why? The Treasury Department and Paulson are pushing to include language in the legislation allowing the Treasury to buy an unlimited amount of GSE debt to ensure liquidity for Fannie and Freddie in cases of emergency. While the CBO argues that there is a better than 50% chance that the expanded authority of the Treasury would never be used (it expires December 2009), even they can’t argue for best case scenario. Pimco manager Bill Gross even doubts that it won’t be exercised.
