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Overnight the Federal Reserve Bank of New York released detailed holdings in its Maiden Lane LLC accounts, the vehicles created to take on assets from the Bear Sterns and American International Group rescues. The portfolio is a mix of distressed securities, such as collateralized debt obligations, government-sponsored enterprise debt, and, of course, real estate loans.

Yes, the New York Fed, as today’s Wall Street Journal points out, now owns loans to a great many pieces of commercial real estate, including many hotels. The Fed has hired professional managers to run these portfolios, but it may do more to directly preserve the shrunken value of those impaired assets.

The Fed can help itself by supporting the hotels that owe it money. For instance, the major annual Federal Reserve Bank research conferences are mostly held in secluded resorts like Cape Cod, Massachusetts, and Jackson Hole, Wyoming. Conveniently enough, the hotel mortgages it holds appear to be spread across the 12 districts of the Federal Reserve System and provide ready substitute locations.

The Boston Fed could toss some business toward the Maiden Lane mortgagee AIM Boston Suites. While the vistas of Jackson Hole are tough to beat, Fed officials are apparently lending money to the Orchard Hotel in Colorado Springs. The Atlanta Fed’s financial markets conference has been held in recent years at Sea Island and Jekyll Island, Georgia. But the Radisson Hotel in Jacksonville could be the venue for future conferences.

Sure, moving the conferences could mean giving up great views and easy access to golf courses, but that’s not really why anyone attends a Fed conference anyway. The Fed will save money, and even make some of it back in New York.

Image by u07ch.

The House passed a recent Senate amendment to increase the U.S. debt ceiling. This raises the debt ceiling by $1.9 trillion, moving the total amount that the government can borrow up to $14.3 trillion, the highest level ever allowed. Yet the debt ceiling has never been a limitation on how much the government can borrow, rather is an endorsement by Congress of how much the Department of Treasury has already borrowed.

As the figure below shows, since the Second World War, debt has almost always been equal to the legal limit. The ceiling isn’t a limit; it is the debt. All of this comes from the vicious cycle between the debt and the ceiling. First, Congress sets, and subsequently exceeds, its spending. As long as this spending exceeds revenue, Treasury has to finance this spending by issuing more debt. Treasury quickly hits its limit—think of it like maxing out a credit card. In the meantime, Congress approves more spending, which Treasury now cannot finance. Then Congress raises the ceiling and can approve more spending.

As a result Treasury doesn’t view the ceiling as a bound. In fact, Treasury announces in advance when it’s going to need more debt room. In its debt refunding release last November, the Treasury admitted that, “based on current projections, Treasury expects to reach the debt ceiling in mid- to late December.”

Previously on this blog, Vincent Reinhart wrote that this $75 billion refunding was the largest in history. Just this week Treasury outdid itself by announcing that the next refunding will by for $81 billion in coupon securities. Nor does it show signs of scaling back such purchase. Instead, Treasury’s Borrowing Advisory Committee explained this week that severe cutbacks in Treasury sales could actually damage markets. Like the rest of Treasury, the Borrowing Advisory Committee called raising the ceiling an “anticipated” move.

Delegation of debt to the Treasury and creation of the ceiling have given Congress a nice political cover. Members vote explicitly on the ceiling, not the debt level; too bad it’s congressional spending that creates the need to raise the ceiling in the first place.

Washington has frequently treated budget arithmetic as an exercise in sleight of hand and the legislative process as if it were as much about salesmanship as statesmanship. The stimulus legislation—the Americans Recovery and Reinvestment Act (ARRA)—passed in February lives up to that tradition on both counts.

In a recent contribution in Forbes, colleagues Alex Brill and Amy Roden identified a portion of the stimulus package that Congress and the administration are not likely to let expire. They find that potential science spending could add billions to the deficit.

Greater government spending on science, we are told, will encourage more cutting-edge research and entry by students into upper-level science programs. House Speaker Nancy Pelosi espoused this view during the ARRA debate. “We all know that in business or in science or in education, capital attracts talent. You have to have the labs. And talent attracts capital. And so we want to make very wise investments in this recovery package so it is about innovation,” Pelosi told the House Democratic Steering and Policy Committee.

But there is a problem with what was actually passed. The ARRA required that the decisions made to fund new science projects be made in the ten months after the legislation passed, or exactly as much time required for the National Science Foundation’s (NSF) normal merit review process. But unlike highways, science is rarely shovel-ready. It takes time to craft a proposal to the NSF and the National Institutes of Health and time to evaluate them. As a practical matter, only those projects in the pipeline or close to being done had any prospects of receiving stimulus funds. Thus, there was little new research incentive in ARRA, only a lump-sum transfer to those lucky enough to be completing project applications. Even if ARRA encouraged some hasty applications, the projects still would have come from current researchers rather than attracting the new talent that Pelosi and others envision.

The stimulus bill may be ready to dig into projects, but it will not generate path-breaking research that would contribute to American’s economic competitiveness.

Adam Paul is a research assistant at AEI.