Last modified on June 28, 2016, at 01:20

Peter Orszag

Peter Richard Orszag (born December 16, 1968 in Boston, Massachusetts) served as Director of the Office of Management and Budget under President Barack Obama from 2009-2010. Previously he served as director of the Congressional Budget Office from January 2007 through November 2008 and Special Assistant for Economic Policy to President Bill Clinton from 1997-1998.

Orszag now serves as vice chairman of global banking at Citigroup, a recipient of $476 billion in bailout money from taxpayers - more than any other bank - after the disastrous Financial crisis of 2008.

Orszag and Fannie Mae

As worries about Fannie Mae's overexposure for securitizing nearly $1 trillion in debt grew in 2001, Fannie Mae hired Orzsag, Joseph Stiglitz, and the Managing Director of their firm Jonathan Orszag to write a paper to calm fears. The conclusion made the fantastic claim that Fannie Mae's chance of insolvency were 1 in 500,000:

...the probability of a shock as severe as embodied in the risk-based capital standard is substantially less than one in 500,000 – and may be smaller than one in three million. Given the low probability of the stress test shock occurring, and assuming that Fannie Mae and Freddie Mac hold sufficient capital to withstand that shock, the exposure of the government to the risk that the GSEs [government sponsored entities Fannie Mae and Freddie Mac] will become insolvent appears quite low.

Given the extremely small probability of default by the GSEs, the expected monetary costs of exposure to GSE insolvency are relatively small — even given very large levels of outstanding GSE debt and assuming that the government would bear the costs of all GSE debt in the case of insolvency. For example, if the probability of the stress test conditions occurring is less than one in 500,000, and if the GSEs hold sufficient capital to withstand the stress test, the implication is that the expected cost to the government of providing an explicit government guarantee on $1 trillion in GSE debt is just $2 million.

...In the absence of Fannie Mae and Freddie Mac, mortgage risk would likely be held by large banks and other types of financial institutions, which themselves benefit from the perception that they are “too big to fail.” Fannie Mae and Freddie Mac are among the largest financial institutions in the country. Even in the absence of a GSE charter it is likely that they would continue to benefit from their size, since the government has intervened on behalf of other large institutions in the past....[1]

Stiglitz was awarded the Nobel Prize in Economics for 2001. When Fannie Mae went insolvent in 2008, throwing the planet into deep economic upheaval for the better part of the next decade, Fannie Mae removed the paper from its website.[2] And shortly after Peter Orszag was proven disastrously in error with his prediction of 1 in a half million chance of a Fannie Mae meltdown, President Barack Obama appointed Orszag to manage the U.S. government's finances as Director of the Office of Management and Budget.


  1. Implications of the New Fannie Mae and Freddie Mac Risk-based Capital Standard, by Joseph E. Stiglitz, Jonathan M. Orszag and Peter R. Orszag. Fannie Mae Papers, Volume 1, Issue 2, March 2002, Conclusion p.6.
  2. Stiglitz and Orszags on Fannie Mae, David Henderson, November 9, 2009.