July 20, 2007
Policy Pete points us to a speech by James B. Lockhart III, director of OFHEO, the Office of Federal Housing Enterprise Oversight — no, I hadn't heard of it either. OFHEO's job is to oversee Fannie Mae and Freddie Mac, the "government-sponsored enterprises" that together own a staggering amount of mortgage debt in the US. As Pete says,
OFHEO is a sad case. Nearly every press release, issued with minimal clutter, even austerity, is a sad cry for help: "...won't somebody please look at this frightening report we're sending to you. Yes, we know it is scary and we know we can't do a damn thing about it even though you probably think we are trying to do something, only we can't because our hands are tied."
The problem is the sheer scale of the debt involved. Lockhart:
These Enterprises are huge. To put their size in perspective, as of March 31, the combination of the mortgage-backed securities (MBS) that they guarantee ($3.0 trillion) and their debt outstanding ($1.5 trillion) totaled $4.5 trillion; not that much smaller than the publicly held debt of the U.S. of $5.1 trillion.
Got that? The mortgage debt they own is almost as big as the entire national debt of the federal government. It's a big number.
Too much of that debt is in danger now because of the slowdown in housing and the resetting of adjustable-rate mortgages. Lenders have been taking unreasonable risks, irrationally hoping the housing bubble would last forever. But here's where things stand:
How big are the numbers we're talking about here? A million seconds is 11 and a half days. A billion seconds is 32 years. A trillion seconds is 32 thousand years. 4.5 trillion seconds? 142 thousand years. So if we pay it off at a rate of a dollar a second...
Have a nice day.