Owen

Bailout Cost, per Taxpayer, by Income

My apologies, Mr. Shaw. My post was intended for some of the commenters above, whose forecast was based on nothing but panic.

True, the initial indication of profit on the TARP funds may be misleading. However, the assumptions behind your calculations are also already known to be false, even if no additional dollar of TARP is to be repaid from this day on -- an unlikely scenario.

There was no way of knowing any of this in September 2008. What bothers me is the accountability of naysayers. I salute you for following up on your old articles and responding to comments. However, the fear mongering crowd of commenters who kept predicting the end of the world -- they were heroes a year ago, and now are nowhere to be found. I'd like to see one of THOSE idiots stand up and say, "Sorry, I was wrong!", instead of hiding behind a new alias.


On Sep 01 10:51 AM Richard Shaw wrote:

> Owen -- I presume from your comment that I am one of those idiots
> in your opinion. I disagree strongly with your view that TARP has
> shown a profit. There is no way to know what the profit or loss
> is until all the accounts are settled. It is false logic to assume
> that because some accounts have turned out well that the remaining
> accounts will perform similarly.

Bailout Cost, per Taxpayer, by Income

It's fun to go back 11 months, and see the comments of all the idiots who were convinced the US (or the world) was coming to an end, and how the government will never see a penny back from the TARP money.

So far, the US taxpayer has actually made a profit of 15% on the TARP money, much of it already paid back. Where are these prophets of doom now? Probably posting here under a new alias.

Here's the current status of TARP: business.theatlantic.c...

Wednesday Outlook: Commodities, Emerging Markets

Alex,

When Lyndon B. Johnson was in office, I was on the other side of the ocean, fighting wars of our own.

The US military buys most of its light firearms from Colt and a few specialty manufacturers. I don't see how Smith and Wesson would benefit from additional wars, unless they are fought on the streets of Los Angeles. A fear of imminent tightening in gun control laws is the most likely explanation for the rise in stock price, although I'd be surprised if their next quarterly report will actually show a dramatic increase in sales.

The author's comment about Shiller and the "novel approach" is pure demagoguery. Shiller has been using the same method for his calculation all along, something the author knows or should have known before making such an accusation.

This author has a tendency to see conspiracies and sinister plots in the most trivial events. I'd be happy to listen to them if he had any shred of proof to support them. Alas, he prefers to hide behind veiled suggestions and obscure innuendo.


On Mar 04 10:05 AM Alex Biggs wrote:

> Fakir and Owen: Not sure if you're old enough to have historical
> perspective based on your comments.

Wednesday Outlook: Commodities, Emerging Markets

> One company doing really well since the election is SWHC with the stock up 38%. Hmm, I wonder why?

Indeed, why? Buffalo Wild Wings is up 92% since November. So what? If there's something you want to say, say it. Enough with the innuendo.

> and come up with this novel approach this morning

"Novel"? Shiller has always been using the ten-year trailing earnings formula. Look up his original historical paper, and get over your paranoias already.

Opportunities in a High Correlation World

otbricki: The Talmud was only 1500 years ago, and since Jews were forbidden from charging each other interest, the last one third was to be in ready-to-use cash on hand.

Also keep in mind that 1500 years ago, most of the world's economic productivity came from agriculture, so keeping a third of your investments in land made more sense then than it does today.

The Talmudic scholars were brilliant people, but you cannot blindly apply their investment advice to today's economy without first understanding the underlying conditions that prompted it.

Tuesday Outlook: Commodities, Emerging Markets

YR Dog,

Yes, I must be The Insider Shill who drove up the entire market 5% on large volume after the close on Friday. I am also Jack the Ripper and the Easter Bunny.

Stupidity always hits a nerve with me. I can assure you that if I had access to insider information which I could lawfully use, I would use it without hesitation.

Tuesday Outlook: Commodities, Emerging Markets

We have laws against trading US securities based on non-public information about these companies to which the insider trader has access. There is, however, no law against trading such securities based on advance knowledge of the actions of a foreign government. It is perfectly legitimate under US law for people close to the Chinese or any other foreign government to use such government information for their advantage in trading US securities.

It may be "crap", as you call it, but it's part of the game. Insiders are not there for you to "trust" (or mistrust); they are there to make money off you. They play under exactly the same set of rules as you do, but armed with more information than you have. Live with it or find a new profession.

Bailout Cost, per Taxpayer, by Income

Nicely put, Smarty_Pants!

However, keep in mind that most of the losses have already been accounted for due to mark-to-market principles, so anything paid above market value will appear as a profit on the next quarterly report for the company.

Also, normal supply and demand rules still apply, so when the Treasury starts buying $850B of these toxic assets at market price, this market price will rise sharply.


On Oct 02 02:17 PM Smarty_Pants wrote:

> Purchasing bad debt won't eliminate the losses that it represents.
> At best it will transfer them.
>
> Three cases:
>
> A) Treasury buys toxic securities at original values - original owner
> avoids losses, taxpayers take them.
>
> B) Treasury buys toxic securities at true value - original owner
> forced to realize the loss NOW, taxpayer avoids loss.
>
> C) Treasury buys toxic securities between full value and true value
> - original owner forced to realize partial losses NOW, taxpayer gets
> partial losses.
>
> No matter what, any schedule 3 asset that is not bought at full value
> will put an immediate loss in the company's bottom line (which is
> the fact we're trying to avoid right?). This still leaves the original
> owner with the same problem NOW instead of later.
>
> Any other option requires the taxpayer to take the hit instead.
> Blather about "holding until profitable" is just that, Blather.
> If that were truly the case, Warren Buffett would be buying level
> 3 assets instead of loaning money to Goldman and GE at 10% interest
> with warrants.
>
> The reason Warren Buffett isn't buying toxic assets is that there's
> no way to make money on them without risking a huge loss.

Bailout Cost, per Taxpayer, by Income

Good comment, JasonC! Nice to see someone who understands real life economics.


On Oct 01 03:16 PM JasonC wrote:

> The UST collects 20% of national income regardless of policies, tax,
> spending, funding, investment, any of it. That is the econometric
> reality.
>
> Therefore, the only question and I mean the only question on the
> cost of this policy is whether it will raise or lower future GDP.
> If it will raise it, it will pay for itself many times over. If
> not, it will cost something.
>
> But a very modest something. Our actual collective wealth is not
> the money lying around, or the inventories, or even all assets at
> their current prices, let alone the prices they would fetch in a
> general deflationary smash. Instead, it is our entire future income
> stream, also known as the economy. Which is $14.3 trillion a year
> and rising 6-7% a year forever.
>
> Nobody debating the subject is remotely sane or thinking like an
> economist, and it show. One entry accounting and tendentious spin
> is all you see.

Bailout Cost, per Taxpayer, by Income

The whole discussion of coupon rate and Treasury cashflow is moot. The Treasury can opt to issue additional debt to cover payments and grow the deficit to any level Congress allows it. It can also, through the Reserve, control the inflation rate and change the real cost of payments to any value it is comfortable with.

The question of total cost is relevant and important, but the issue of coupon rates and dates is pointless.

Bailout Cost, per Taxpayer, by Income

Richard,

This article is riddled with inaccuracies and misleading statements.

Firstly, the 'bailout package' is an acquisition by the Treasury of one trillion dollars' worth of low-grade securities. The final net cost will be one trillion dollars only in the highly unlikely event that the securities bought are not worth a single penny. The previous US banking bailout returned about 75 cents on the dollar. If this is the case now, the actual cost will be $250 billion. Remember, AIG alone, now owned by the Fed, is worth around $200 billion under normal circumstances. There's no reason to think it can't be spun off in the future for a similar amount.

Secondly, you seem to have forgotten that the largest taxpayers in America are corporations, both domestic and arms of foreign companies. Accounting for those changes the numbers dramatically.

Thirdly, the top 5% of taxpayers make the bulk of their income from investments. They are, in fact, pushing to get this deal done, as it would save them far more than it costs. The rest of the taxpayers also make a significant portion of their earning from investments, be it their pension or their employer's profit sharing plan, but they may not realize that's the case.

Like you, I also have my doubts about this bailout package, but it is important we present the facts truthfully.