From James Pethokoukis at Reuters:

Main Street may be about to get its own gigantic bailout. Rumors are running wild from Washington to Wall Street that the Obama administration is about to order government-controlled lenders Fannie Mae and Freddie Mac to forgive a portion of the mortgage debt of millions of Americans who owe more than what their homes are worth. An estimated 15 million U.S. mortgages – one in five – are underwater with negative equity of some $800 billion. Recall that on Christmas Eve 2009, the Treasury Department waived a $400 billion limit on financial assistance to Fannie and Freddie, pledging unlimited help. The actual vehicle for the bailout could be the Bush-era Home Affordable Refinance Program, or HARP, a sister program to Obama’s loan modification effort. HARP was just extended through June 30, 2011.

The move, if it happens, would be a stunning political and economic bombshell less than 100 days before a midterm election in which Democrats are currently expected to suffer massive, if not historic losses. The key date to watch is August 17 when the Treasury Department holds a much-hyped meeting on the future of Fannie and Freddie. A few key points:

1) Republican leaders believe this is going to happen since GOPers and Democratic moderates in the Senate are unwilling to spend more taxpayer money on more stimulus. But such a housing plan would allow the White House to sidestep congressional objections and show voters it is doing something tangible about an economy that seems to be weakening.

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Office of Management and Budget Director, Peter Orszag is one of the first major players of the Obama administration to call it quits.  Orszag was touted as one of the most brilliant minds in number-crunching, especially by Ezra Klein, who deemed Orszag as the most influencial bureaucrat:

In the coming years, no bureaucrat will be as decisive as Peter Orszag — the former director of the Congressional Budget Office who is now the head of Barack Obama’s Office of Management and Budget — and few bureaucracies will be as important as the CBO and the OMB. For every major policy and legislative fight, those organizations will decide the Number: the official price tag of a government program. And you can’t do anything without the Number.

But while everyone was so enamoured with the heartbreaker, stud, and hottie Orszag and his economic brilliance and wisdom to sound alarms of repeated financial unsustainability as the CBO director, what did the USA really get?  Patterico has a quick outline on Orszag which touches on some key points, but with Orszag’s background, people should wonder how he ever got to hold the keys to the budget.

If you look a bit closer at his education, background, and experience, Orszag was everything that the Keynesians/progressives/Democrats could have dreamed of in a budget director.  Let’s explore.  Aside from being the former CBO director, Orszag  was a senior fellow and Deputy Director of Economic Studies at the Brookings Institution, where he directed The Hamilton Project. His education is impressive having studied and receiving two degrees from the London School of Economics (LSE). While all Orszag’s education and experience appears impressive, it should have been more alarming than comforting to Americans.

Orszag’s policies are heavily influenced by his days at the LSE, and Obama has placed others from the LSE in his administration. As prestigous as the LSE may be, it is concerning because of the school’s founding and history, and continual ideological path it has taken since its inception. But how does all of this translate into effective economic policy specific to the capitalistic US economy? It doesn’t.  Although it may not have been apparent, but Orszag’s ideology shaped the US economic policy into exactly what the Obama administration had planned.

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From the great Peter Wallison in today’s Wall Street Journal:

The Congressional Budget Office has estimated that, in the wake of the housing bubble and the unprecedented deflation in housing values that resulted, the government’s cost to bail out Fannie and Freddie will eventually reach $381 billion. That estimate may be too optimistic.

Last Christmas Eve, Treasury removed the $400 billion cap on what the government might be required to invest in these two GSEs in the future, and this may tell the real story about the cost to taxpayers. In typical Washington fashion, everyone has amnesia about how this disaster occurred.

The story is all too familiar. Politicians in positions of authority today had an opportunity to prevent this fiasco but did nothing. Now—in the name of the taxpayers—they want more power, but they have never been called to account for their earlier failings.

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Despite the few voices of caution, risk and leverage had become a national fixation, embraced both on Wall Street and in government. The SEC and the Fed, the main regulators in charge of monitoring the buildup of risky assets on the banks’ books, together with the rating agencies, were the modern-day equivalents of Nero fiddling as Rome burned.The fire in this case was the massive and rapid buildup of mortgage debt on the balance sheets of the banks; by 2006 it was approaching $1 trillion and heading higher without so much as a peep from the traditional watchdogs.

Still, the risk taking and leverage went beyond the brokerage houses and the banks. The GSEs, Fannie Mae and Freddie Mac, were in the game as well. By now, Fannie and Freddie had fully and completely conceded their original mandates to the whims of the Washington political class, which demanded “affordable” housing for all, even those who couldn’t afford it. The politicians were giddy with Fannie and Freddie’s conversion from staid mortgage banks to subprime lenders that would make Angelo Mozilo, the CEO of the largest subprime lender in the markets, Countrywide Financial, envious.

It was an evolution that took years in the making. As HUD secretary, Andrew Cuomo boasted in one report in the late 1990s that the new mandates he was imposing on Fannie and Freddie to ramp up subprime lending “could be of significant benefit to lower-income families, minorities, and families living in underserved areas.”

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