Mohamed El-Erian, chief executive officer of PIMCO (not pictured below), painted a bleak picture of the global economy at a press briefing of Allianz Global Investors earlier today.

"This is not the crisis within the global system. This is the crisis of the global system," El-Erian says.

"Internal circuit breakers are meant to deal with crises within the system. The crisis of the system challenges all the circuit breakers. There is no reset button."

For the patient -- the world economy -- who is in intensive care after a cardiac arrest following the collapse of Lehman Brothers in September, governments will play a bigger role in getting the patient back on a recovery path.

"You can no longer predict asset value without thinking about the role of governments. Governments are no longer referees, they are players," El-Erian says.

How do you buy $750 billion of toxic bank assets with only $250 billion of taxpayer money?

If you know to play U.S. budget rules like a violin.

President Barack Obama told Congress in passing this week he might need more money than lawmakers have already approved to stabilize banks and pull the economy out of the ditch. 

How much? His budget virtuoso Peter Orszag said on Thursday he could support buying up to $750 billion in bad assets but only needed to set aside $250 billion to do it.

Regular US budget rules assume government credit subsidies will recoup some of their value. Appropriators budget for such items according to how much they think the government will lose -- not the full amount of the credit.

Orszag explained his thinking on Thursday:

"Honest budgeting suggests, when you pay a dollar for a financial asset, that doesn't make the government worse off by a dollar," he said at a news conference. "It's not the same thing as a net cost of a dollar, because you are getting something in exchange for it."

Why didn't they do this earlier? Well, in the knock-down-drag-out fight to get Congress to approve the first bailout plan, the $700 billion TARP, the Treasury Department had to agree that money used would be counted dollar for dollar against the total. Thus, when the Treasury had committed $247 billion of the first half by the end of 2008, it counted as an increase of the debt held by the public of $247 billion.  

Some thought this approach overstated the costs of the bailout, including the venerable Congressional Budget Office.

 "The budget should only record the subsidy cost of those purchases (an estimated $64 billion)," the independent agency wrote in January, referring to the $247 billion that had been spent by the end of the previous year.

New administration, new outlook. Asked whether he was taking leave to do something a little different, Orszag, who ran the CBO until Obama named him budget director,  replied:

"That is the way the Congressional Budget Office - which, since I used to run it, would say it has a very good reputation for doing things honestly and well -- that's the way it does it, and that's the way we're doing it also." 

In the end Congress will have to decide whether it is in tune  with the Obama administration's get-three-for-the-price-of-one way scoring of the next bank bailout initiative. 

REUTERS/Jim Young (President Barack Obama makes statement on 2010 Federal Budget)

If you're among those upset that your taxpayer dollars may be spent in volume to rescue people who -- for whatever reason -- can't make their mortgage payments, Federal Financial Analytics analyst Karen Shaw Petrou recommends thinking about it this way:

"Preventing foreclosures has a lot in common with treating syphilis. In both cases, you help some who are undeserving, but – in an economic collapse or a public-health emergency – one acts nonetheless. "

Just as in an serious epidemic, you'd take care of the problem and leave moral judgements to others, the right course of action is to take action to halt the housing crisis and leave the debate about moral hazard to economists, she wrote in a note to clients on Friday.

Yes, it's possible that under President Obama's plan to prevent mortgage foreclosures, some borrowers who could make their current payments may score a "quickie refi" at potential taxpayer risk, Petrou says.  Others may abuse a provision that allows judges to reduce the amount of principal on some loans, she adds.

But give the Obama plan credit for trying to be fair by trying to weed out the the undeserving by limiting relief in certain ways, Petrou writes.

And in any case, the current crisis is the "the financial equivalent of a mortal epidemic," she says.

Plenty of time to lecture about practicing safe credit later.

Will President Barack Obama attend the summit of the Group of 20 rich and emerging countries in early April, hosted by UK Prime Minister Gordon Brown to tackle the financial and economic crisis?

The working assumption is he will, on one of his first foreign trips as president. But there is still no official confirmation.

At the G20 summit in Washington on Nov. 15, Obama’s transition team stuck strictly to the rule: “There is only one president at a time”, and the president-elect did not meet any of the foreign summiteers.

Brown has warned that if the London summit fails, the world risks sliding into protectionism and a slump similar to the 1930s.

That raises uncomfortable echoes of an earlier London Economic Conference, called in June 1933 to tackle the Great Depression, revive trade and regulate currencies.

The new U.S. President, Franklin D. Roosevelt, effectively pulled the plug on the conference by rejecting currency stabilisation negotiations and devaluing the dollar by taking it off the gold standard to push up prices.

It was not until World War II – which was partly caused by the Depression — that the United States was able to regain global economic leadership.

As Roosevelt’s negotiator at the conference, Secretary of State Cordell Hull, put it:
“If goods cannot cross borders, armies will.”

Malcolm McLaren, the man who gave us The Sex Pistols, has found the real punks -- bankers. In an interview with Britain's The Observer, he says punk was not just about spiky hair and ripped t-shirts.

"It was all about destruction, and the creative potential within that. It turns out that the bankers may have been the biggest punks of all."

McLaren says we are now at a transformative moment.

"We're at the end of the culture of desires; we may be going back to a culture of necessity."

God Save The Queen

Stocks are tumbling around the world and Mainstreet is feeling the crunch, but at the Institute of International Finance (IIF) luncheon it was hard to see the dark side past the luxurious chocolate mousse cake and keynote comedy.

Jacob Frenkel, the vice-chairman of American Internal Group (AIG) — yes, that insurer on the receiving end of an $85 billion government bailout a few weeks ago (and now an extra $37.8 billion loan ), gave a light-hearted address on the G7’s plan of action to combat the credit crisis.

Frenkel was quick to take issue with the lack of details in the G7 plan and urged the importance of concrete dates.

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