Tales from the Trail

Bold budget boosts bailout

February 27, 2009

USA-OBAMA/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)

Comments
4 comments so far | RSS Comments RSS

I dont get it!!! Im a physician living and practicing on Long Island NY. Yes i make over 250,000 a year. So now what?? Increase my taxes to over 40%!!! My malpractice as well as every other general surgeon on long island is $100,000 a year and increasing this year by as much as 20% with a $50,000 surcharge on top of that!!! Never mind office overhead and employees!! So, do the math. Some one in my office is going to be out a job so that i can pay my mortgage and put food on the table for my family or else im going to be the next one forclosing and trying to move out of state!! Something has to give!! Insurance companies no longer pay so that the CEO’s can each make at leats 50-100 million dollars a year. What is going on??!!! There are so many crooked politicians and lawyers ripping of the public, how about going after them!! I worked hard in school and have over $200,000 in school loans that i am paying off. Once again, do the math. Whos helping me??? I can go on and on trying to explain but no one will listen!!!

Posted by Frank | Report as abusive
 

Actually it is “Bold Budget Skyrockets National Debt”.

This is unreal. Adding debt to get out of debt. Does anyone else see the travesty in this reasoning?

If we did this in our own life, we would face catastrophic consequences. In this case, we will face catastrophic consequences as a nation.

BTW, there is nothing bold about this budget. It is arrogant and deceitful. We are being told lies and more lies and will lead to our destruction unless we do something about it.

Posted by TC | Report as abusive
 

Actions speak louder than words – and Obama just proved he is another ordinary politican. None of us can run a household budget with funny money buckets. Why should we allow our government to do so?
VOUSG

 

Americans deserve this hell. We had a chance to nominate and elect a great leader. But we chose an inexperienced guy who gives great speeches. Guess what? This guy is so clueless about finance and money, he has to hire a Wall Street goon to decipher it for him.

I listened to this great leader, and his wise words have prevented me from losing any money in this entire debacle.

Pssh.

hint: Ron Paul

Posted by Angry Voter | Report as abusive
 

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