Rick Santelli and Rep. Scott Garrett on Federal Loans

Early Thursday, CNBC’s Rick Santelli and Representative Scott Garrett (Republican-New Jersey), discussed fair-value accounting in Government loan programs. Let’s take a look at some of the highlights:

Mr. Santelli starts the interview by citing a Wall Street Journal story: “Fraudulent Government Accounting.”

“The Congressional Budget Office, Washington’s official financial scorekeeper, says in a new report that the Department of Education’s four largest student loan programs will yield an official savings of about $135 billion in fiscal years 2015-2024. That’s $135 billion that Congress will claim it has available to spend. But CBO also notes that under fair-value accounting that is practiced in the real world, the four student loan programs will likely cost $88 billion. An official $14 billion projected taxpayer gain at the Export-Import Bank is actually a $2 billion loss. And the official $63 billion windfall expected from the FHA’s single-family mortgage guarantee program is in reality a $30 billion taxpayer fleecing. CBO is obligated to practice bogus accounting under the amusingly titled Federal Credit Reform Act of 1990. But CBO periodically does a public service by calling attention to this legal fraud and explaining why its official estimates don’t accurately measure what these programs really cost.” (WSJ).

Regarding fair-value accounting, Rep. Scott Garrett answers: “the CBO does it -as you and I might say- the right way, to include the fair-value accounting.” On the opposite, he assures, the Office of Management and Budget, does not, and that’s why they are trying to get them to do what they believe is the right analysis on these things.

When looking at the student loan programs and at the FHA (Federal Homing Administration), what many notice is that the Government is getting involved in the financial aspects. Mr. Garrett clearly sees this as a problem. “When the government ever gets involved with anything, they imply to the American public there’s something like a free lunch out there and we know in life there is no such thing as a free lunch –he declares. Ultimately, the taxpayer is put on the hook.” For instance, Mr. Garrett assures that the FHA’s programs do not make money for the taxpayer and the Government, as they would assure. On the opposite, the CBO tells us that FHA loses around $3.5 billion.

But, what about kids that go to college? What about their families? College is certainly expensive. However, one must get “accurate facts” to make a “true judgment”, Santelli states.

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