Bold budget boosts bailout
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)