The Christmas Eve Taxpayer Massacre

On Christmas Eve, while nobody was supposed to be watching, the Treasury Department lifted the bailout ceiling on Fannie and Freddie from an already appalling $400 billion to an unlimited amount.

In 2007, I denounced the entire bailout as little more than a looting operation.  I appreciate that some consider the bailouts as necessary to prevent a wholesale liquidation/collapse of the entire economy, and I even share some sympathy with that view.  However, I humbly submit that similar actions could have been taken without enormously enriching the very same parties that either caused the disaster or unwisely invested their money with the companies that did.  Both sets of participants deserved to learn a very expensive lesson, not get bailed out at enormous expense to future taxpayers and national prosperity.

In 2008, I warned that the Fannie and Freddie bailouts were going to cost a lot more money than was claimed by the government, despite the fact that the then-director of the Congressional Budget Office, Peter Orszag, firmly declared that there was only a 5% chance that taxpayers could lose more than $25 billion.

Here's a blast from the past, just so that we can keep track of these things.  This article is from July 23rd, 2008.

Cost of Loan Bailout, If Needed, Could Be $25 Billion

WASHINGTON — The proposed government rescue of the nation’s two mortgage finance giants will appear on the federal budget as a $25 billion cost to taxpayers, the independent Congressional Budget Office said on Tuesday even though officials conceded that there was no way of really knowing what, if anything, a bailout would cost.

The budget office said there was a better than even chance that the rescue package would not be needed before the end of 2009 and would not cost taxpayers any money.

But the office also estimated a 5 percent chance that the mortgage companies, Fannie Mae and Freddie Mac, could lose $100 billion, which would cost taxpayers far more than $25 billion.

[…] the director of the budget office, Peter R. Orszag, predicted that “a significant chance, probably better than 50 percent, that the proposed new Treasury authority would not be used before it expired at the end of December 2009.”

Mr. Orszag, at a briefing with reporters, acknowledged that pinpointing the eventual cost of the package was impossible. “There is very significant uncertainty involved here,” he said.

"Significant uncertainty?"  Not to me, there wasn't.  I was completely sure that these CBO estimates were laughably low and completely out of line with every known bit of housing data at that point.  Foreclosures were already higher than the CBO baselines and were trending downwards, and losses were already far higher in private mortgage pools than the worst-case estimates for the Fannie (FNM) and Freddie (FRE) pools.

I'm sorry, but any analysis that begins with the proposition that the government is vastly better at the mortgage business than private industry is simply not credible, especially given that together FNM and FRE are half the entire market.

Two weeks later, in September 2008, I wrote this:

…$250 billion is pretty much my floor on the costs [of the Fannie and Freddie bailouts]. I happen to think that we’ll experience something closer to a 10% to 15% default rate [on GSE mortgage pools], which would yield a $500 billion to $750 billion loss estimate.

These estimates are reasonably close to the truth as we know it today.  How did I do it?  How did I manage such stunning accuracy where the CBO failed so badly?

Easy.  I made the assumption that the FNM/FRE portfolios would experience the same loss rates as private portfolios and used a calculator, the FRE & FNM balance sheets, and two minutes of my time to develop a reasonably good answer.  With a team of analysts and the actual portfolio information, I could have gotten much, much closer.

On Christmas Eve, the time when the most incendiary news is buried deep to avoid detection, this is what happened:

On Christmas Eve, when most Americans' minds were on other things, the Treasury Department announced that it was removing the $400 billion cap from what the administration believes will be necessary to keep Fannie Mae and Freddie Mac solvent. This action confirms that the decade-long congressional failure to more closely regulate these two government-sponsored enterprises (GSEs) will rank for U.S. taxpayers as one of the worst policy disasters in our history.

Where the director of the CBO stated that there was a 5% chance that the total cost would be in the vicinity of $25 billion, we are now faced with an exposure large enough to force the stealthy removal of a $400 billion cap on Christmas Eve.

One more time, we might ask how an outside analyst like me, using publicly available data, could be so much more accurate than the government itself, with its vast teams of analysts and better data?

The answer, unfortunately, is that my numbers are constructed from evidence and math, while the government's numbers are regularly fashioned for political advantage.  These numbers often have no basis in reality; nearly everybody knows it.  Yet the NYTimes continues to breathlessly report the ersatz numbers (as they did above), failing to ever circle back on the errors once the numbers are proven to be dangerously wrong.

For example, the most recent full-length article in the New York Times about Peter Orszag goes into great depth about his deep policy experience, budgetary skills, family life, and workout habits, but not his stunning inability to spot a multi-hundred-billion-dollar black hole (obviously in sight at the time of this article) that so many in the blogosphere immediately saw.

In a culture where we worship power, but apparently not the ability to get to within the nearest few hundred billion as a budget director, I suppose this is not much of a surprise.  Still, it tells us something about our chances of being faithfully guided to safe shores by our promising young leadership.  They're not good.

In this long sordid tale, marked by the constant use of fuzzy numbers that overstate our economic health and understate our fiscal losses, we find little to bolster our confidence in either our existing processes or rules.  Once again I call for honest numbers as the only meaningful way to gain a true picture of our state of health, so that we can more readily assess the scope of the problem and craft acceptable responses.

I will also note here that without the massive subsidization of the US housing market by the government through Fannie and Freddie, it is unlikely that the enormous housing bubble would have developed to the extent that it did.  I see that there's some pressure now to assign blame to loose underwriting standards in the subprime markets, but one cannot ignore the $4 trillion growth in the balance sheets of FNM and FRE.  They provided an unending wall of fresh liquidity, without which the bubble never would have attained its deathly heights.

Instead of now squandering an additional half trillion dollars on blown mortgages - all just paper losses attached to depreciating assets - our nation could have afforded to completely revamp our electrical grid, install wind and solar power to an enormous degree, and put solar water collectors on nearly every rooftop, thereby greatly helping our future prospects while providing productive jobs today.

But we're not doing that, and most likely we'll never be able to, because we chose instead to provide ourselves with a housing bubble, an endless stream of bogus loss estimates, and the protection of the investment portfolios of the very richest people in the land.

If I were an incumbent in office, I’d be very, very worried about keeping my job.

The way out of this remains the same:  The losses for this fiasco need to be assumed by those who made the bad decisions.  Otherwise there's no justice, no fairness, and no opportunity to learn a good lesson from a bad time.  Moral hazard is corrosive, not just because it fosters future mistakes, but because it undermines the rule of law by making it clear that there's a different set of rules in play, depending on who you are.

I am practically desperate at this point to see my nation and my government stop wasting money trying to resurrect already-destroyed capital and begin investing in the energy and educational infrastructure that we really need.

I am going to spend 2010 working as hard as I can to continue spreading the message about our true predicament and the solutions and actions that could help us build a better future.  Let's work on this together.

Otherwise, the Christmas Eve taxpayer massacre will simply be the opening salvo to another lost decade.  A decade that I am not willing to lose.

This is a companion discussion topic for the original entry at

Hi, Chris,
Welcome back.

I’ve been on this site for about 6 months.  Member for 3. 

As I understand it, there is NO plan for a “way out”.  Seems to me that there is more talk and blather, more posturing…but the general direction and momentum are mainly “stay the course”.

As I’ve seen on this site, the course, ain’t pretty.  Not by a long shot.  Most of the members of Congress are part of the problem.  They are looking for re-election.  They are NOT looking out for the “everyman”. 

Yes, I believe that when the elections arrive this year, there will be taxpayer activism. 

But the question:  even though I expect plenty of push-back by the populace, the effect will be…what? 

We’ve had years to build up a head of steam in the wrong directions.  And we’ve been shoveling in more coal to make the steam hotter.  And still going in the wrong directions. (I calculated how long a Trillion dollars would be if they were all connected end to end:  you could fly at the speed of sound for over 14 YEARS non-stop before you got to the end… 1 Trillion) 

Yes, every shovel makes a difference.  Yet it seems that the momentum of this juggernaut has passed (?) many points of no return. 

I’ve taken action for God, gold, guns.  I’ve begun to take action for self-survival away from the city with some land, garden, well, arrays, lake for protein, etc.

Yes, I’ve embraced a start towards community of like-minded people.

Anywhere out of the city seems to be a better option.

Yes, better to light a single candle than curse the darkness.

So the question:  how do we communicate these circumstances to the masses?  One to one works…but it may be too slow.  What outlet is the best to inform and educate? 

Honestly, there are times when I’m talking to others about these things and I feel as I might as well be talking to myself.  Many people are too absorbed in their day-to-day activities to concern themselves with other causes.  Even though these folks can be an integral part of change for the better, their interia has become a way of life.  The time that it takes someone to be exposed, learn, embrace…allows for the greater momentum to keep pushing us toward the World Bank, etc.

Lead on, faithful scout.


I am going to spend 2010 working as hard as I can to continue to spread the message about our true predicament and the solutions and actions that could help us build a better future. Let's work on this together. 
I'm in. This is ridiculous. My son is going to ask me 10 or 20 or 30 years from now, "Dad, if you knew this was going on why didn't you do something more about it?" I'm already embarassed by my answer!

Chris, what can we do starting now? I have a sense of this being too big to do anything about it, but it is too big to NOT do something about it!

Let me know! please!


Great comment. I agree 100%. In trying to reach a larger audience, would there be a way to do an “info-mercial” type of thing? Maybe buy air time (yeah, I know, lots of money) and broadcast the critical points. 

It might be good to publish a book, too. A lot of people will read a book rather than a watch an online video. And it would certainly be easy and convenient to give away. And when it hits #1 on the “NY Times Bestseller” list, that would garner some more awareness for sure.

Any other large-scale ideas?


I’d donate if there was an effort to do an infomercial.
If it only reached a few thousand people, it’d still be a success.
The real effect is going to be revealed when the leadership changes from the incompetent incumbents to  those who step up to clean up the mess.
I’d view it as an investment in America’s future. 

Thanks again for great information Dr. Martenson. 


I am in too…
What about a simple bumper sticker?..  We need a slogan for the movement… like the Ron Paul campaign (which I was not part of… it was only in the last year that I truly accepted the “red pill”).  Like other posters here… I have had my frustrations talking to others about the truth… they either gloss over, or, like my own brother, tell me I am crazy (he wanted to hang up the phone on me).  That’s just a measure of how well trained the masses are by the corp owned media machine that rule our culture.  

I would put a bumper sticker on my car;

“It’s going to blow up… ask me how”

“The green paper is not what you think”

“Gold is honest, and I am too”

The movement needs a quick, catchy trapdoor in… other ideas?





Nope, an infomercial will not work. The masses have the information clearly available to them if they want to step out of their comfort zones. They don’t care and they will not care until there is no food in the stores.  The powers that control the media will not allow it in any event. That’s what ‘expensive’ means… Tens of thousands of dollars have been spent on ads and nothing changes. The wars and outright thievery by a certain class continues.
The Revolutionary War was reportedly won with only ~20% of the people of the time even agreeing to the points of contention; most people were out of touch communication wise; almost all were just trying to survive another day. Only a few landowners and malcontents actually sat down and discussed the issues and decided to ‘hang separately or together’…

There is another way and it is gaining momentum as we speak: Zeitgeist. I encourage everyone to take a look at;  there is a movie that first appeared about 2 years ago and has now gone viral with over 50 million views worldwide and over 200 local and international chapters; an Addendum that focuses on where to go next, and some stunningly prescient and revolutionary (in a peaceful sense) videos and PDF files of information to read, think and reflect upon. I’ve been doing research into this now for several months and I’m finding it hard to come up with counterpoints to convince myself ‘it can’t work…’    It’s a new system of a resource based economy and ultimately wants to do away with money and jobs per se. Yeah, I know.  Hard to fathom.  But the present system has PROVEN itself corrupt, bereft of new ideas other than new scams, and lacking in the most fundamental understanding of math and sustainability on a finite planet.

Thank you Chris for all you do.  I  hope you investigate Zeitgeist thoroughly and let us know what you think.  Your input would be very important, either as critic or contributor! 


“Reality is Fake” would be my bid haha

Strongly suggest you have more than 6 posts before you start peddling zeitgeist, which is comprised of some pretty dirty misinformation, bad chronology and shameless inferences. If you’re one of the collaborators, I don’t need to explain it to you - you know what they are.

This site is to further Dr. Martenson’s efforts, not zeitgeists.

Please, it’s sort of an unspoken rule to contribute accordingly.



How much of this latest bailout is for covering the GSE’s losses? Or is it for covering losses AND for the GSE’s to become the mortgage market? As you pointed in a report a while back, the FED IS the mortgage market. The banks sure as heck are not going to start to buying up mortgages, they are still insolvent. With the FED purchases of MBS’s due to end in the spring(supposedly), does that mean we the U.S. taxpayer are now we the U.S. taxpayer mortgage company? If that’s the case, then it sounds to me that the U.S. government has figured out how to reflate the housing bubble. Wow. I feel sick to my stomach.

I don’t see how ‘having more than 6 posts’ (I’ve been a long time reader, does that count??) would change my posting here. Zeitgeist is NOT “full of pretty dirty misinformation, bad chronology and shameless inferences” …  all the negative misinformation I have so far run across has been just that, misinformation. It all gets addressed in Peter Joseph’s weekly radio addresses if you want to open your mind long enough to listen and think.  Or please fill me in on your specific complaints, i would love to hear something besides third party rumor mongering.
If the best Chris’ followers can do is suggest an informercial or a ‘best seller’ I’m sorry but that has already been done ad infinitum.  IT HASN’T WORKED!  We are up against something much bigger than any of us.  Is that not completely clear???  The only way around this beast is to ignore it and set up a completely new economic system, so large that it is active in all countries, not just one here and one there, which can be overthrown by military action.

I’m sorry if stepped on an ‘unspoken’ ban on possible solutions.  Maybe some of Chris’ followers have yet to hear about Zeitgeist and would truly be interested.  No, I’m not a collaborator.  (???)  I’ve been studying it and it seems like the best way to move forward that i have yet seen put out there and i obviously have a lot of company.

Aaron, your post smacks of the kind of thing Karl Rove is famous for.  What’s your suggestion for a fix?  More lies? More pushing for people to not look at every possible solution?  Do you speak for Chris, who I truly appreciate and admire? Or are you a disinfo plant for the ‘anti Zeitgeist’ crowd (there’s always a few…)


A long time reader wouldn’t have to ask those questions.
Go read, post a lot less.

You’ll find in short order that:

  1. Dr. Martenson has no “followers” who “suggest” anything. This is a circle of educated, intelligent people who share his ideas, values and value the knowledge and research he’s shared with us.
  2. Suggestions for fixes are erroneous, as no one is listening.
  3. I actually am a “zeitgeist disinformation plant”, and I’ve been here in secret waiting for you to show up for over a year! My chance at last, blown by your wily cunning!

Everything about your last post summarizes why I would have nothing to do with Zeitgeist.
There are sensible, sane people out there with an Anti-American Agenda.
I watched Zeitgeist, and with a couple quick google references, found some flat out misleading information had been presented, based on half-truths, inferences and word of mouth. This is not the place for that, and I think a “long time member” would have enough respect to know that.

If you choose to believe infomercials are impractical, perhaps you should consider that the content you present is just flat out unappealing because of its zealous mispresentation of information. Such is not the case with the Crash Course, which draws interest and attention from the seminars and from word of mouth. It’s not based on conjectural, political or dogmatic suppositions, but rather Facts, Educated Opinions and Well founded Beliefs. 
This mix is appealing, as it’s information that can be easily referenced, places no partisan blame and cuts directly to understanding the nature of the collapse - which is eminent.  

Karl Rove… I wish I could say “I’ve been called worse”.
Those are fightin’ words, fella, and I’d ask you kindly to refrain from saying anything behind the safety of that monitor you would elect to withhold in person. 

This is the wrong venue to pick an “e-fight”. If you have any issues you’d like to take up with me, lets not pollute an important, informative thread by the host of this site. PM me.



Forgive me for brainstorming
re: bumpersticker-“bailouts robbed our children’s future-now what?”

re: elections-The backlash against incumbents has started in my neighborhood.  Our Democratic county executive of 12 years was summarily ousted by a Republican and it really looks like it was done just to get someone new into office in hopes of making some change.  I know I voted for him too and I am not a registered republican and I remember thinking I wanted to get the old guy out even though he really isn’t so bad…


re: educating the public-I have participated in a few social movements over the years in minor ways.  Each organization I worked with had a Fact Sheet. With hard data to get your attention.  We could come up with something like that to use in any medium to get across the hard facts (“25 billion to fix Fannie and Freddie, now up to  3/4 trillion…”). Or maybe there is one on the site already.  I find such things compelling.

The other thing I am thinking is that people respond better to the “last” crisis. Look at what happened after 9/11. Perhaps the focus should be as much on the damage already as on the impending disaster. In specific concrete terms. 


Honestly, I still do not understand what it means to have trillions in debt. Something in my brain won’t allow it to compute.  I have asked my closest friends to help me plan for a currency crisis and they say buy PM’s and move to the country.  The rest think I am too depressing or that I am getting brain washed by fear mongering.





Aaron, I believe the unwritten rule on this site is that we, as members, speak our mind freely.  “More than 6 posts before you start peddling Zeitgeist” …??.  I am proud to see Signalfire not take that lying down, that is the type of spirit I respect.

Speaking his mind would be different than regurgitating the work of others, wouldn’t it?
If Signalfire was sharing information that he himself had collected and analyzed, his post count would be irrelavant.
When someone shows up on a forum and instantly tries to sell something, circulate links to their “what-have-you” or undermine the efforts being made on behalf of the host site, it’s slightly rude.

It’s good to see respect is earned through internet bravado, rather than a record of good dialogue!


Thank you, Nacci.
Aaron is young and foolish.  I’m still waiting for an HONEST, FACT BASED refutation of Zeitgeist.  I actually would love to see where he’s going wrong.  To me although it sounds vaguely (okay, not so vaguely) utopian, I’m also having trouble finding fault with it.

I DON’T rely for my ‘opinions’ on a Wikipedia-like article slamming something new.  Geebers, we’re in big trouble here and bumpersticker slogans aren’t gonna fix things.

And Aaron, just for your info, I’m not a ‘he’; I’m a 56-year-old gramma and I’ve been watching this crap going down now for many more decades than you have been alive, if your picture is correct. I get my info from hundreds of sources, not a few here and there and I’ve learned to be VERY leery of other’s unfounded opinions stated as fact.

I thought the U.N. was the big time, but the title of this article is what people are going to always remember you for!

Absolutely brilliant! There are 538 cowards sitting in their homes (in the study, under the covers, at the dinner table), their faces blank, but twisted in terror, an ocassional twitch of the eye, the lip, first one cheek then the other, spittle dripping from the corners of their mouths, knowing they are going to have TO DEAL WITH THAT TITLE AND WHAT IT REPRESENTS!



P.S. I’m now going to read the article…

Sometimes I think this site is hopeless.
Time after time I see a member of this community propose a plan of action or solution only to be shot-down by someone else. Its like a contest of who can be more negative, or should I say “realistic”.  

Did Dr. M. author the Crash Course or the Crash Curse?


Ma’am, strong suggestion, start at the link provided. Then, do your own research.
This Foolish young man did about the same work I did, only I didn’t care enough to catalog the inconsistencies, exaggerations and inferences. Nor did I bother wasting my time debunking this junk for as long as he did.

ronically, your methodology was described exactly in his opening statement. 
Further still on the road of irony is that you’re saying that you don’t get your information from Wikipedia-esque garbage… yet you believe Zeitgeist without having done a proper, evidential investigation…
You might call this cognitive dissonance: Holding two simultaneous, contradictory thoughts in your head - that nothing on the internet is credible except what you believe, and anything you believe on the internet is credible.

With luck, this will clue in readers to the fact that I’m not just being a jerk, and I’ve had this argument more times than I care to rehash with many-a-dogmatic Zeitgeist believers. Bring on the …tology!
“And if you don’t believe it, well, we’ll just sue you, slander you and try and make you feel like less of a person!” 



Jag, the hopelessness you feel is a byproduct of the ineffectiveness of lack of true action.  We have all become very good at reading, posting and some of us, like Chris, arithmetic.  ACTING on what appears to be the truth of the matter is nearly impossible. The regulators have forsaken their duties; the ‘government’ is a pack of thieves with a few marginalized (Kucinich) truthtellers.  There’s 100’s of millions of guns in this country and apparently billions of rounds of ammunition but no where is a ‘revolution or else’ threatened.  We are afraid of the people we pay to govern us.  They own the standing armies, they own the bigger guns, they ‘know best’ or at least they are still hiding behind that fairy tale.
Other threads have posited the possibility that this country is unsalvageable.  I think it’s even worse, I think the world wide economic system as it has come to be in existence is a mathematical impossibility to continue much longer. What’s next?  Resource wars?  Well, we already have them.  Mass starvation?  Ditto but it hides in ‘other countries’ for the most part.  The future is almost too frightening to contemplate. I’m glad I’ll only be around a few more decades but I fear for the generations coming up next.

Contrary to Aaron’s take on things, I am not trying to sell anyone on any particular idea or course of action. Just putting it out there for everyone to consider.  I had occasion a few weeks ago to meet Michael Ruppert of ‘Crossing the Rubicon’ fame. (and yes, he’s a controversial figure also). It astonished me when I asked him his opinion of Zeitgeist and he told me he had never heard of it!  HE’S IN THE MOVIE!!!

Figured based on that fascinating tidbit that many more have not heard of it and would like to look into it. Hopefully, with a more open mind than Aaron has.