Too big to save?

It’s widely assumed on Wall Street and in Washington that the shareholder-owned companies are too important to the US mortgage market to fail, which the Bush administration confirmed with its plan. However, during Congressional testimony last week Paulson frustrated many lawmakers by not putting a price tag on the rescue package…

But, this being Washington, there’s a catch. CBO Director Peter Orszag told reporters Tuesday that the plan could also cost nothing — or as much as $100 billion. In a letter to House Budget Committee Chairman John Spratt, Orszag said there’s “a significant chance — probably better than 50 per cent — that the proposed new Treasury authority would not be used before it expired at the end of December 2009.” But Orszag also said there’s perhaps a 5 per cent chance that the rescue could cost as much as $100 million.

Zero to $100 billion. Nice range…

There is one bit of certainty, however: The rescue plan provides no upside for the taxpayer. Orszag calls it a “one-sided risk.”

“The federal budget would not directly benefit if the [companies’] balance sheet recovered dramatically,” said CBO’s summary of the plan. But if Fannie and Freddie needed to lean on their rich Uncle Sam for assistance, “the federal government would bear costs over the next 17 months as a result of the legislation.” In his letter to Spratt, Orszag spells it out more clearly, saying the proposal might strengthen the link between the mortgage buyers and the federal government, which would “increase the government’s underlying exposure to the risks associated with [them].”

Some plan.

Excerpted from a comment by Brian Wingfield in ‘Forbes’