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Tuesday, March 31, 2009
6:21 PM TweetThis
  • The U.S. government and the Fed have spent, lent or committed $12.8T to rescue and stimulus attempts, so far. That's 14x the $900-odd billion in circulation; almost equal to the entire 2008 U.S. GDP; and works out to $42,105 for every man, woman and child in America.
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This news story has 22 comments:

  •  
    OK, but let's keep in mind that only a fraction of that amount has actually been spent. Or is keeping things in context not important for Seeking Alpha?
    Mar 31 06:34 PM | Link | Reply
  •  
    All I can think of is how much more taxes I will need to pay next.
    Mar 31 06:37 PM | Link | Reply
  •  
    $12.8 Trillion?? Not to worry. At $1,000 an ounce (30T/oz) that's equal to 300,000 tonnes of gold.

    Trouble is, that's twice whatever has been mined in the entire recorded history of the world so either one throws in a lot of silver (which is scarce too) or gold (or both) to provide some backbone to the dollar, or, precious metals rise.
    Mar 31 06:37 PM | Link | Reply
  •  
    ... that's been spent YET. There's plenty more to come from many different directions including (but not limited to) more down the Fannie/Freddie/AIG ratholes, bailing Goldman out of any other bets that go against it, taking a bath on toxics so PimRock can buy themselves islands, and probably bail out a few states along the way. The party has just started.


    On Mar 31 06:34 PM Machiavelli999 wrote:

    > OK, but let's keep in mind that only a fraction of that amount has
    > actually been spent. Or is keeping things in context not important
    > for Seeking Alpha?
    Mar 31 06:45 PM | Link | Reply
  •  
    Its hyesterical how so many people get tripped up and start crying about the future taxes. Blah, blah, blah. A great majority of this will be paid back. Do people not understand the basic concepts of loans? Sure the govt will lose some money, but it'll be worth getting this economy back on track. Does everybody understand that when GS pays back the TARP money that it'll go to pay back what the govt lent? Maybe we can calculate how much each taxpayer will get and play around like we've now gained money.

    The real issue is the amount of money sitting on the sidelines that will come flooding into this market. We'll have one heck of a bubble if the govt doesn't remove the liquity fast enough.
    Mar 31 06:55 PM | Link | Reply
  •  
    I hope you're right Stone, but I'm not confident that Helicopter Ben can easily stop what he's started. The FED has been creating bubble after bubble and sooner or later the mother of all bubbles (treasuries) is going to burst. I don't think he has a big enough mop in his (interest rate) bucket to sop up the mess.
    Mar 31 07:25 PM | Link | Reply
  •  
    The article talks about funding committed, not actually used, and certainly not the actual cost that the government will pay. As Stone Fox Capital points out the great majority of the funding committed is for loans. Most of these loans are backed by AAA collateral - and the Fed takes a haircut in the valuation (i.e. they do not lend 1:1). While there is a chance that the Fed may loose money in some of them - especially when you consider the guarantees to Citi and BoA, it is certainly nowhere near the $7.77 trillion that the Fed has committed its balance sheet for according to the article. Similar arguments can be made for the FDIC investments and much of the TARP investments - though the latter will probably see significant losses given the valuations first applied to the banks' (though some of those are reduced by interest payments on the preferred stock). What is true spending are the stimulus packages (the tax credit last year, and the $787bn stimulus this year).

    Without the Fed committing as much capital as it did to prevent a liquidity crunch, we'll probably have deflation to contend with now. Nevertheless, the Fed will have to play a very nimble hand to reduce liquidity as the economy starts showing signs of life, without killing the recovery, and avoiding an inflationary spike - I bet stagflation is not fun either.

    trackthestimulus.com
    Mar 31 07:34 PM | Link | Reply
  •  
    Let's see, the GM car or truck, is insured through AIG, and financed through the bank?

    How are the toxic assets of the bank assigned value if in part those assets include GM Corporate bonds worth 6 cents on the dollar? How is equity defined?

    The car owner has also exercised the (newly announced GM) 9 automatic payment option plan, because of unemployment.

    Presumably, this is the driving engine of the stimulus plan to create enough of a business cycle (lead) to create the payments required to satisfy all parties involved.

    I would much rather anticipate a world of electric cars, free energy and an acquired taste for longevity. But then again, in this climate, how many CEO's does it take to change a CFL?

    One to manage the shut down of the old incandescent plant, one to manage the start up of the new CFL plant and one to manage the disposal of the CFL in order to unite a perfect ecology of recycling.
    Mar 31 07:43 PM | Link | Reply
  •  
    Allright! Call me an optimist, but I am starting to see crocuses of economic recovery busting out all over. Long side traders now have a spring in their step after a 23% rise in the Dow in three weeks, the best move since 1938. If it is true that the stock market anticipates moves in the real economy by six months, then a lot of managers are going to come back from their summer vacations in September to find a surprising batch of new orders. Commodities have been on an absolute tear this year, especially oil and copper, classic harbingers of future business activity. Just look at my favorite, Freeport McMoran (FCX), which soared 170% from the November lows. The downward momentum of a whole range of economic indicators is slowing. The durable goods number was actually up last week! The mother of all inventory adjustments is almost over. Retailers are still offering the deals of the century, but there is very little left in the back room. The Baltic Dry Shipping Index has tripled off of its November low, hinting that international trade may come out of its comatose condition. And they are no longer looking for organ recipients for the major airlines. Now I hear that semiconductor makers are expected to make their Q1 targets. Maybe it’s because spring has arrived, and the girls on the Embarcadero have shed their overcoats for low cut tank tops. Or maybe the $4 trillion in global stimulus is starting to have its desired effect.
    Mar 31 08:16 PM | Link | Reply
  •  
    There's a few people here that are going to lose their clients a lot of money.
    Mar 31 08:33 PM | Link | Reply
  •  
    But their money is not truly lost. It comes to others....ka ching...


    On Mar 31 08:33 PM MajorG wrote:

    > There's a few people here that are going to lose their clients a
    > lot of money.
    Mar 31 08:43 PM | Link | Reply
  •  
    Readers,

    If you would, and I urge that you would, please, chew up the numbers and reflect upon them. Then search your memories back a couple of years.

    Doesn't this whole "Thing" (the Government spending the 12.8T) look like what the Greedy Bankers offered consumers sub-prime deals as ARM, and 0% Interest Credit Card Balance Transfers, only that those rates had to be reset some time down the road?

    I bet you for everything that we will be (will be in italics) hit by Hyperinflation like a Tsunami sooner that you would like to believe.
    Mar 31 08:58 PM | Link | Reply
  •  
    Has anyone ever tried to recover money thrown out of a helicopter?

    I think Bernanke is going to find that pulling liquidity back into his helicopter is a little harder than he bargained for.
    Mar 31 09:26 PM | Link | Reply
  •  
    Let's all recall the history of capitalism and what it means. Money goes to where it will grow. That real wealth begin heading East a long time ago.

    The real issue is whether our society will be willing to accept the current Chinese way of living standards but we all have iPods. I honestly believe we will default. Citizens have this thing called Google. Now all of us enjoyed the ride on the way up and we all should share the pain on the way down. But in this era, it has become apparent in a microsecond to the citizens whom refuses to take haircuts and begin the party. Some of you should be making quiet exits out the door, but in your narcassistic imbalances you will attempt to squeeze the sponge of it's last drop when you already have a new sponge and bathtub waiting.
    Mar 31 09:40 PM | Link | Reply
  •  
    It’s interesting to watch the market drop and then rise artificially. People who naively buy into this administration’s ponsie scheme look at the market and see deals they can’t pass up while true mavens of the market see the writing on the wall. As the naïve rush to buy like sharks in chum filled water the informed ride the wave, finger primed on the trigger waiting for the short sell. The next CEO dismissal or resignation, brand name corporation failure, or previously propped up failing enterprise with their hand out yet again is right around the corner. They soon will be coming more frequently as the major automakers continue to buckle under ever emptying coffers, banks fail to find qualified borrowers, and Americans scale back their buy now, pay later lifestyle. These small bubbles will continue to grow and burst along the way as once can’t miss avenues of wealth reach shocking lows too tempting for some to pass up.

    Why is it that people think that the government can suddenly run a business? Social Security has no inventory to purchase or risk to manage and yet it is an epic failure. If you fumble what essentially is a savings account how can anyone possibly conclude you have an ability to compete in the market?

    Ride these bubbles with caution, and beware of a deal that seems too good. Running to treasuries in times of trouble has been the wisdom of the past but buying into a bankrupt country with few options other then printing it’s way out of it is a dangerous game. Investment overseas is the safest bet right now. This economic slow down is currently global but the shadow of the growing US problems are a large part of this. Once foreign economies begin to grow out of the shadow of the US economy and time shines a true light on this administration’s ponsie scheme you will be well vested.
    Mar 31 09:45 PM | Link | Reply
  •  
    why this upset.
    Its only paper or les.
    Mar 31 09:50 PM | Link | Reply
  •  
    History has repeatedly demonstrated that government bailouts do not work. Obama and company have zero credibility and risk continues to rise that the USA will collapse. Besides, why on earth would you listen to these clowns on TV daily assuage your fears and let you know that their solutions will work. These are the same idiots that created the mess. Dont be fleeced by tweedle dee and tweedle dumb.
    Mar 31 10:33 PM | Link | Reply
  •  
    14x leverage... since when has fighting fire with fire actually worked?

    Even if low-cost debt financing means that private equity investors can come in to buy the CDOs and MBSs at higher prices than they could otherwise, banks would have to write down losses that would still effectively make them insolvent...

    Simple Discount Calculation:

    FV of MBS = 1.00
    Actual Value = 0.50

    10% Equity, 90% Debt = 9x Leverage
    Cost of Equity for Private Equity Investor = 25%
    Cost of Debt (Government) = 3.5%
    Tax Rate = 30%
    WACC = 4.7% Effective Discount Rate

    If you assume the holding period until exit is 5 years, the price is 0.397.

    If you assume the holding period until exit is 3 years, the price is
    0.436.

    And if you assume a private equity holder can exit in 1 year from today, he would be able to pay 0.478 on 1.00 face value that is worth 0.50 and get a 25% return.

    The leverage allows private equity bidders to make more attractive bids to banks, but compared to the original face value the banks are still going to have to take heavy losses. Meanwhile, the taxpayer is burdened with incredible risk at 14x leverage.
    Mar 31 11:01 PM | Link | Reply
  •  
    We're phucked
    Apr 01 12:41 AM | Link | Reply
  •  
    Money is never lost....Its just moved from one perception to another. Lets hope that what Obama does works, otherwise the entire world will go into depression. (if were not already there...)

    Jim Cramer is wrong again...and so are all those idiots on CNBC.
    Apr 01 04:23 AM | Link | Reply
  •  
    Stone fox
    The borrower is slave to the lender. Loans/leveraging/Gov budget imbalance without appropriate constraints will always have unintended consequence. It is just difficult to see what they are before the smoke clears from the party.
    Apr 01 06:56 AM | Link | Reply
  •  
    """Commodities have been on an absolute tear this year, especially oil and copper, .....Retailers are still offering the deals of the century, but there is very little left in the back room......Or maybe the $4 trillion in global stimulus is starting to have its desired effect. """

    HELLO...just deleted some words...and look at you wrote again...a totally different context...

    Which actually agree's/summize's w/what the original author of this thread was musing about...

    DUH....rampant inflation...COMING ....
    Apr 01 07:17 AM | Link | Reply
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