JW Verret's got a nice post arguing that "the Obama Administration’s deceptive accounting practices for its ownership in the automotive and financial sectors hide a big slice of the real national debt and annual budget deficit."
It has been a rare opportunity to share with this forum my new paper, Treasury Inc.: How the Bailout Reshapes Corporate Theory and Practice, forthcoming with the Yale Journal on Regulation and available here. ...
When Peter Orszag ran the Congressional Budget Office, he fought the Bush administration over consolidating Fannie and Freddie’s debt into the national budget. His position was that two principles of government accounting require consolidation. Principle one, we control these companies; principle two, we guarantee their debt. For more, take a look at, after I testified on this issue here, this press release from the Congressional House Oversight Committee about how I discovered the problem described in this post.
Orszag has been noticeably silent since joining the Obama Administration. Omitting appropriate liabilities from our government’s books is deceptive, allows us to borrow more than we should and feeds our habit for deficit spending.
The administration disputes its control of TARP companies. Yet the government tells GM what kind of cars to build and GM and Citigroup which directors to elect. It tells Fannie and Freddie which mortgages to subsidize. Secretary Geithner affirms that we stand behind the banks, which means we stand behind their debt as well. Budget consolidation principle one, check. Principle two, check. ...
Administrations are short-lived. In three or seven years President Obama and his staff will retire to the benefits of speaking fees, consulting contracts and cable news appearances. But the debt remains, and it is a legacy by which our children will rightly judge us. If we permit this administration to use accounting wizardry to hide our debts, we should not be surprised when we are judged harshly.
The full faith and credit of the U.S. is not a depthless well, and the administration’s current budget policies risk turning Treasury bonds into the ultimate subprime loan. Future generations could be saddled with inflation, increased taxes and interest payments on Treasury bonds that take up an ever-increasing share of the federal budget. It’s time for this administration to bring transparency to the federal budget process by accounting for TARP holdings properly.
