The CBO has a new report on those nasty, toxic mortgage backed securities the Federal Reserve bought, along with a host of other crud from the financial meltdown.

Here's the gist. The CBO says all of this toxic sludge will make the U.S. some money! $70 billion in 2010 and 2011.

CBO projects that remittances will grow from about $34 billion in fiscal year 2009 to more than $70 billion in fiscal years 2010 and 2011.

Of course, the returns realized on asset backed securities such as those in the Maiden Lane portfolios could deviate significantly from what is expected, given the uncertainty about the returns on the underlying assets. The actual outcomes from the Maiden Lane investments depend on what happens to the economy, and the Federal Reserve could experience significant losses if the economy worsens. Also a possibility, though, is that it could reap large gains if the market for asset backed securities turns around more quickly than has been anticipated.

How can this possibly be with fictional derivatives and so many mortgages in foreclosure? Through fair-value estimates and subsidies.

CBO and the Administration’s Office of Management and Budget (OMB) use a conceptually similar subsidy measure, as specified by the Emergency Economic Stabilization Act of 2008, to estimate the budgetary cost of the Troubled Asset Relief Program, or TARP.

CBO calls such subsidies “fair value” in part to distinguish them from subsidies calculated through the method specified by the Federal Credit Reform Act of 1990 and used by CBO and OMB to estimate the budgetary cost of federal credit programs.

The report has quite a bit on fair-value subsidies and estimates and the current claimed costs are $21 billion in subsidies. But the bottom line is these projections are completely dependent upon the economy and markets. Anyone notice the DOW in the last week?

The good news is when the Federal Reserve bought many of these toxic assets, they obtained haircuts or a price reduction on what their worth was claimed at the time. The haircut percentages on each class of asset are listed in table A.1 on page 22 of the full report.