Tales from the Trail

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.”

It’s not just U.S. stocks that are on a roller coaster ride in reaction to congressional testimony by Federal Reserve Chairman Ben Bernanke and other top officials.

Fed staff stock plunged on Wednesday when they put their boss in an awkward position during Bernanke’s testimony before Congress on the financial bailout and efforts to stabilize the swooning economy.

Rep. Scott Garrett testily reminded Bernanke that he was still waiting for answers for a letter he sent in December.

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.

White House spokesman Robert Gibbs said on Friday that CNBC’s reporter Rick Santelli may not have taken a responsible view with his rant against President Barack Obama’s housing plan.

Santelli was the darling of cable television on Thursday for railing about Obama’s $75 billion plan to help rescue people struggling to make their mortgage payments.

On a trading floor in Chicago, Santelli wondered aloud whether people really wanted to “subsidize” mortgages.

Good day you hosers!

President Barack Obama takes off to the Great White North today on his first foreign jaunt as president. Trade will top the agenda in Ottawa as Obama seeks to ease concerns about protectionism. He’ll also discuss the war in Afghanistan and clean energy technology with Prime Minister Stephen Harper and the Canadian Parlaiment, but the one-day trip leaves little time to get into details. Too bad, eh?

Obama’s foreclosure plan should start showing results as soon as next month, Federal Deposit Insurance Corporation chairman Shelia Bair said on ABC’s “Good Morning America.”

Defense Secretary Robert Gates is in Poland, seeking help from allies for the war in Afghanistan. The United States is sending an additional 17,000 troops, but has now lost its last remaining air base in Central Asia after a “Yankee Go Home” vote was approved by Kyrgyzstan.

Tis the season to be, er, generous with taxpayers’ money.

The White House and Democrats in Congress are busy putting the finishing touches to a whopping $15 billion Christmas present for the U.S. auto industry. The two sides have been haggling for several days over the terms of the bailout to rescue the “Big Three” Detroit car manufacturers but are now reported to be close to agreement.

 House of Representatives Speaker Nancy Pelosi told NBC’s “Today” breakfast television show that if Congress approved the agreement a “car czar” charged with restructuring the industry could be appointed as soon as this week. She said she favored former Federal Reserve Chairman Paul Volcker for the post although he may already have his hands full — President-elect Barack Obama has named him as his senior adviser on jolting the economy out of recession.

 Obama has been critical of the Bush administration’s efforts to tackle the mortgage foreclosure crisis that has seen hundreds of thousands of Americans lose their homes. The issue will be under the spotlight at 10 a.m. EST (1500 GMT), when the House of Representatives Oversight and Government Reform Committee holds a hearing on the role of mortgage giants Fannie Mae and Freddie Mac in the financial crisis.