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Wednesday, October 22, 2008

Bailout Cost

SEARCH BLOG: BAILOUT

Bill and I talked yesterday about the "bailout" and things economic. He wanted to know what I thought. What I think is this: the bailout strategy is confusion by obfuscation. A lot is spoken and little is said.

Some basic questions:

  • What is the real nature of the problem?
  • How much is really being spent to address that problem?
  • Who gets the money?
  • How is it spent?
  • Who administers the bailout funds?
  • What are the administrative costs?
  • What other expenditures are attached to the bailout?
  • How does it address the problem(s)?
  • How much are the total expenditures... directly addressing the problem, administrative, costs, unrelated to the problem but tagged on to the bill?
  • How much more spending is anticipated beyond the initial expenditures?
  • Will any of the bailout be repaid by the recipients?
  • How much more in taxes will that cost me?
I can address the last item.

I'm presuming that the advertised price [$700 billion] is before the bait and switch takes place. Of course, the cost per taxpayer is an average cost. Since the top 5% pay most [over 40%] of the taxes...

This translates into these additional taxes by income group:

[click on image for larger view - opens new tab]

I'm sure that will have a positive effect on our economy. Of course, under an Obama administration, there won't be any additional taxes ... except for the rich... so don't worry. And since Obama has convinced you that only the rich were involved in the financial problems, it is "only fair."

Meanwhile, Bill sent this email with more information about "what went wrong":

Federal Reserve
http://www.federalreserve.gov/

Note recent developments (all actions are not listed here; go to News and Events)

Federal Reserve - News and Events
http://www.federalreserve.gov/newsevents/default.htm

The Money Market Investor Funding Facility (MMIFF) news release appears here.

Note the sublink for "Information Regarding Recent Federal Reserve Actions". That's where many of the other financial actions are identified, but that list is far from complete.

Federal Reserve - Information Regarding Recent Federal Reserve Actions
Actions from Sep 7 2008 - Present
http://www.federalreserve.gov/newsevents/recentactions.htm

This listing of actions doesn't cover the entire list. You will need to go to the archive for Monetary Policy Releases. Your first effort will walk you back to January 2008. Again, that effort still doesn't cover all actions undertaken. Recall that Fed actions related to this financial crisis kicked in during the fall of 2007 (as I recall). So, change the year in the window to 2007 and hit the Change Year button.

Federal Reserve - Monetary Policy Releases - 2008
http://www.federalreserve.gov/newsevents/press/monetary/2008monetary.htm

Federal Reserve - Monetary Policy Releases - 2007
http://www.federalreserve.gov/newsevents/press/monetary/2007monetary.htm

I believe that the list of principal special actions began with the August 10, 2007 announcement that the "Federal Reserve is providing liquidity to facilitate the orderly functioning of financial markets".

Just who is running this insane asylum?


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There is always an easy solution to every human problem—neat, plausible, and wrong.
Henry Louis Mencken (1880–1956)
“The Divine Afflatus,” A Mencken Chrestomathy, chapter 25, p. 443 (1949)
... and one could add "not all human problems really are."
It was beautiful and simple, as truly great swindles are.
- O. Henry
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The Independent (UK)

Tracking Interest Rates

Tracking Interest Rates

FEDERAL RESERVE & HOUSING

SEARCH BLOG: FEDERAL RESERVE for full versions... or use the Blog Archive pulldown menu.

February 3, 2006 Go back to 1999-2000 and see what the Fed did. They are following the same pattern for 2005-06. If it ain't broke, the Fed will fix it... and good!
August 29, 2006 The Federal Reserve always acts on old information... and is the only cause of U.S. recessions.
December 5, 2006 Last spring I wrote about what I saw to be a sharp downturn in the economy in the "rustbelt" states, particularly Michigan.
March 28, 2007
The Federal Reserve sees no need to cut interest rates in the light of adverse recent economic data, Ben Bernanke said on Wednesday.
The Fed chairman said ”to date, the incoming data have supported the view that the current stance of policy is likely to foster sustainable economic growth and a gradual ebbing in core inflation”.

July 21, 2007 My guess is that if there is an interest rate change, a cut is more likely than an increase. The key variables to be watching at this point are real estate prices and the inventory of unsold homes.
August 11, 2007 I suspect that within 6 months the Federal Reserve will be forced to lower interest rates before housing becomes a black hole.
September 11, 2007 It only means that the overall process has flaws guaranteeing it will be slow in responding to changes in the economy... and tend to over-react as a result.
September 18, 2007 I think a 4% rate is really what is needed to turn the economy back on the right course. The rate may not get there, but more cuts will be needed with employment rates down and foreclosure rates up.
October 25, 2007 How long will it be before I will be able to write: "The Federal Reserve lowered its lending rate to 4% in response to the collapse of the U.S. housing market and massive numbers of foreclosures that threaten the banking and mortgage sectors."
November 28, 2007 FED VICE CHAIRMAN DONALD KOHN
"Should the elevated turbulence persist, it would increase the possibility of further tightening in financial conditions for households and businesses," he said.

"Uncertainties about the economic outlook are unusually high right now," he said. "These uncertainties require flexible and pragmatic policymaking -- nimble is the adjective I used a few weeks ago."
http://www.reuters.com/

December 11, 2007 Somehow the Fed misses the obvious.
fed_rate_moves_425_small.gif
[Image from: CNNMoney.com]
December 13, 2007 [from The Christian Science Monitor]
"The odds of a recession are now above 50 percent," says Mark Zandi, chief economist at Moody's Economy.com. "We are right on the edge of a recession in part because of the Fed's reluctance to reduce interest rates more aggressively." [see my comments of September 11]
January 7, 2008 The real problem now is that consumers can't rescue the economy and manufacturing, which is already weakening, will continue to weaken. We've gutted the forces that could avoid a downturn. The question is not whether there will be a recession, but can it be dampened sufficiently so that it is very short.
January 11, 2008 This is death by a thousand cuts.
January 13, 2008 [N.Y. Times]
“The question is not whether we will have a recession, but how deep and prolonged it will be,” said David Rosenberg, the chief North American economist at Merrill Lynch. “Even if the Fed’s moves are going to work, it will not show up until the later part of 2008 or 2009.”
January 17, 2008 A few days ago, Anna Schwartz, nonagenarian economist, implicated the Federal Reserve as the cause of the present lending crisis [from the Telegraph - UK]:
The high priestess of US monetarism - a revered figure at the Fed - says the central bank is itself the chief cause of the credit bubble, and now seems stunned as the consequences of its own actions engulf the financial system. "The new group at the Fed is not equal to the problem that faces it," she says, daring to utter a thought that fellow critics mostly utter sotto voce.
January 22, 2008 The cut has become infected and a limb is in danger. Ben Bernanke is panicking and the Fed has its emergency triage team cutting rates... this time by 3/4%. ...

What should the Federal Reserve do now? Step back... and don't be so anxious to raise rates at the first sign of economic improvement.
Individuals and businesses need stability in their financial cost structures so that they can plan effectively and keep their ships afloat. Wildly fluctuating rates... regardless of what the absolute levels are... create problems. Either too much spending or too much fear. It's just not that difficult to comprehend. Why has it been so difficult for the Fed?

About Me

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Michigan, United States
Air Force (SAC) captain 1968-72. Retired after 35 years of business and logistical planning, including running a small business. Two sons with advanced degrees; one with a business and pre-law degree. Beautiful wife who has put up with me for 4 decades. Education: B.A. (Sociology major; minors in philosopy, English literature, and German) M.S. Operations Management (like a mixture of an MBA with logistical planning)