Goldman's Levitt Calls Obama's Gimmick To Keep GSEs Off The Balance Sheet "Shades Of Enron"
A few days ago we made some observations on the just-announced nearly $4 trillion 2011 budget. The key point was that while the ugly numbers already looked like a superglued Frankenstein monster without a Kardasian botox treatment, or even simple lipstick, it would have been truly disastrous had the administration done what Peter Orzsag threatened he would do 2 years ago, namely bring the GSEs, Freddie and Fannie, on the government's balance sheet. How this is not the case yet is simply stunning: the GSEs enjoy not only the constant "bid of first refusal" courtesy of the Fed's MBS QE program, but an explicit Treasury guarantee that has no ceiling as of last Christmas eve. Bloomberg's Jonathan Weil today came to the same conclusion, although being a Bloomberg employee he was characteristically much more crass, uncouth and downright cynical than the paragon of respected journalistic patois that is the establishmentarian concept known as Zero Hedge. In an attempt to awake the morts out of their stupor, a pandering Weil uses such cheap tricks as hyperventilating allegory, sarcasm, and hyperbole when saying that "[b]y all outward appearances, it seems Obama and his budget wizards decided that including the liabilities at Fannie and Freddie would be too much reality for the world to handle. So they left the companies out, in a trick worthy of Enron’s playbook, except not quite so hidden." Obviously, Bloomberg has an uphill struggle if its ever wishes to reach profitability (in the trillions of dollars that is... billions is so fin de pre-bailout siecle). We also fear for Weil's job prospects should he ever wish to find an occupation at such a highly respected place, where not only is there a 4 syllable word minimum but no sentences ever end in prepositions, as the Reuters blogosphere. Ironically, Bloomberg did redeem themselves somewhat later today, when in a Tom Keene interview, Goldman policy advisor Arthur Levitt is caught on tape performing more of the same hyperventilating, and in doing so blasting the administration, using the same Enron-esque analogy, when analyzing the paradox of the GSEs and the sovereign balance sheet.
The full transcript is below. We have bolded the relevant sections. We are more curious whether Levitt's expressed opinion is that of Levitt or of his employee, Goldman Sachs. Our money is on the latter. And when 85 Broad calls Obama's fiscal policy "Enron" you know the cold war between Goldman and Obama is getting warmer by the day.
GOLDMAN SACHS POLICY ADVISER ARTHUR LEVITT ON BLOOMBERG RADIO
FEBRUARY 4, 2010
SPEAKERS: ARTHUR LEVITT, POLICY ADVISOR, GOLDMAN SACHS
TOM KEENE, HOST, 'BLOOMBERG SURVEILLANCE'
KEN PREWITT, HOST, 'BLOOMBERG SURVEILLANCE'
(This is not a legal transcript. Bloomberg LP cannot guarantee its accuracy.)
TOM KEENE, HOST, 'BLOOMBERG SURVEILLANCE': Right now, Arthur Levitt, Policy Advisor, Goldman Sachs, Bloomberg LP Board Member, Former Chairman of the SEC.
Jonathan Weil out with a commentary this morning on the Bloobmerg of a $6.3 trillion essentially off balance sheet transaction. Should Fannie and Freddy be on the balance sheet? Should they be visible to the taxpayers?
ARTHUR LEVITT, POLICY ADVISOR, GOLDMAN SACHS: Absolutely. It's an incredible article. He's absolutely right. Fannie and Freddie belong on the balance sheet if we're in an era of transparency.
The White House is already forecasting $1.3 trillion budget deficit for 2011, which is about $3 of spending for every $2 of government receipts. Fannie and Freddie are wards of the State. Orszag already promised that that's where they should be. And he's not putting it there. Shades of Enron.
KEENE: Really? That big a deal?
LEVITT: It is that big a deal.
KEENE: Shades of Enron?
KEN PREWITT, HOST, 'BLOOMBERG SURVEILLANCE': So if Fannie and Freddie were on the government's balance sheet, everything would look even worse than it does now?
LEVITT: Oh, considerably worse.
So you don't need the much respected Zero Hedge or the pandering pamphlet that is Bloomberg to get to the same conclusion as Goldman does - that Obama is currently engaged in massive "Enronesque" accounting fraud, which if fully reflecting the 140% debt/GDP reality would cause US CDS to trade side by side with those of Bulgaria.