This story originally was published by Real Clear Wire
By Adam Andrzejewski
Real Clear Wire
The government estimation method puts cost estimates for new loans and loan guarantees issued in 2024 at $10.9 billion over their lifetime. Using the fair value estimation method, however, raises the cost to $76.7 billion, about seven times the federal estimate.
The discrepancy is largely attributable to loan guarantees made by Freddie Mac and Fannie May, the U.S. Department of Housing and Urban Development’s loan guarantee program, and the Department of Education’s student loan program.
In each case, the government’s method estimates these loans saving billions, while fair value estimates suggest they would cost billions. In the case of the student loans, the cost discrepancy between methods is a difference of $44.7 billion.
The CBO notes the fair value method accounts for market risk, which accounts for macroeconomic conditions like productivity and unemployment, which makes it, in its opinion, “a more comprehensive measure than FCRA [government method] estimates.”
Lawmakers and their constituents need to be informed of the true cost of legislation. Using archaic accounting methods that don’t account for real world market risk obscures the true price tag of spending programs.
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