$13.9 Trillion Financial Support Train Wreck

[tengers]

FDIC issued their Summer 2009 Volume 6 report. The total amount of financial payments, supports and underwritings totaled $13.9 Trillion.

Tarp - $700B, GSE $400B, Fed Auction TAF $900B, Fed Comm. Paper $1800 B, Fed direct obligations $200B, FED MBS $1,250B, AIG FED $60B, TSLF FED $250B, Fed TALF $1,000 B, Fed MMIFF $600B, Fed TPP $300B, FDIC TLGP $940B, Joint BA $118B, Joint PPIP $500B, Misc Adjust ($168B) Total = $13,903 Billion.

Now, my guess is we will debate Health Care for people for the next century, but if Wall Street wants another couple of Trillion, we can get that done in a couple of days. All I want to know is who in Congress approved this? (answer - Other than TARP, no one really).

[The Black Ghost]

Some depressing numbers bound only to get worse

[RickSp]

You are comparing real financial apples and oranges here. You list outright bail-out recapitalizations along with credit facilities and loan guarantees. Each has very different risk profiles and aren't directly comparable one to the other.

The Commercial paper facility and the MMIFF are short-term financing and probably pretty safe for taxpayers while the TALF may be less so. The first of the TARP money is expected to be repaid fairly soon. The riskiest money out there may be the AIG bailout but the consequences of letting the AIG CDS fail would have also been catastrophic.

[tengers]

Quote by: RickSp You are comparing real financial apples and oranges here. You list outright bail-out recapitalizations along with credit facilities and loan guarantees. Each has very different risk profiles and aren't directly comparable one to the other. The Commercial paper facility and the MMIFF are short-term financing and probably pretty safe for taxpayers while the TALF may be less so. The first of the TARP money is expected to be repaid fairly soon. The riskiest money out there may be the AIG bailout but the consequences of letting the AIG CDS fail would have also been catastrophic.

This list is from the FDIC. It represents the limit of Authority issued to rescue Banks and Insurance companies. My main point is that 5% of this sum was voted on by Congress, 95% was not. Why????. One would think if you are putting the equivalent of the entire National debt or total GNP on the line, you might at least talk about it.

[RickSp]

Quote by: tengers This list is from the FDIC. It represents the limit of Authority issued to rescue Banks and Insurance companies. My main point is that 5% of this sum was voted on by Congress, 95% was not. Why????. One would think if you are putting the equivalent of the entire National debt or total GNP on the line, you might at least talk about it.

Do you understand the difference between a short term credit facility and a bail out? Or long term debt for that matter? The Fed has had its credit window open to banks since it was founded in 1933. That is what it does. The FDIC was also authorized by Congress in 1933.

The authority for these programs was established by legislation. If you want Congress to vote on the operations of the financial system, then expect banking to collapse, because nothing will ever get done. If Congress objects to the actions of the Fed or the FDIC, they have complete power to change the laws. That is what they do.

[tengers]

Quote by: RickSp Do you understand the difference between a short term credit facility and a bail out? Or long term debt for that matter? The Fed has had its credit window open to banks since it was founded in 1933. That is what it does. The FDIC was also authorized by Congress in 1933. The authority for these programs was established by legislation. If you want Congress to vote on the operations of the financial system, then expect banking to collapse, because nothing will ever get done. If Congress objects to the actions of the Fed or the FDIC, they have complete power to change the laws. That is what they do.

RickSP, Here is the FDIC link to their Supervisory Report, which describes the trainwreck and the $13.9 trillion of FED and FDIC loans and guarantees. http://www.fdic/regulations/examinat...9/si_sum09.pdf

The answer to your questions is yes I understand the idea of debt, loans and so forth. In 2008, these committments were about $6.8 trillion and now they are $13.9 trillion and it is not over yet. The Fed does not have the power to undertake debt without it being fully secured. In other words, they are not allowed to loan money, where they might lose money. The problem at the moment is that all of this debt is junk and cannot be priced. This report describes how things went wrong and how much the rescue plan includes, but it does not estimate the losses. You might also ask how the Banks are able to return Tarp money (they are doing so because of the bonus restrictions on their salaries). This TARP money was never used to save borrowers or support mortgages, it was used to do things like buying Bear Stearns and Merrill. The banks are able to pass their stress test because they used unrealistic unemployment figures in the 8.5% range. Had they used 10%, the stress tests would fail. We are already at 10% and climbing. The stress tests also do not include for failures such as the $460 Billion that is coming due in the next few years for leveraged loans for such things as Las vegas Casinos, which are filing for Bankruptcy, as well as Commercial loan failures and the rapid deterioration of the conventional loan market.

[Apeman81]

The Federal government extracts the wealth of the nation from those who generate and attempt to redistribute it as it sees fit. Why indeed should they explain their methods to the ignorant masses.

Oversight? That’s what we have Czars for. They won, get it! There are no more questions. They won.

Now be quiet of you’ll lose your job. Whatever it is and whomever you work for.

[RickSp]

Quote by: Apeman81 The Federal government extracts the wealth of the nation from those who generate and attempt to redistribute it as it sees fit. Why indeed should they explain their methods to the ignorant masses. Oversight? That’s what we have Czars for. They won, get it! There are no more questions. They won. Now be quiet of you’ll lose your job. Whatever it is and whomever you work for.

Once again, the Republicans snooze for eight years then suddenly wake up after the Bush administration has driven the economy off the cliff. z(The Republicans weren't merely sleeping they were actually cheering.) Your whining isn't very impressive Ape.

[RickSp]

Quote by: tengers RickSP, Here is the FDIC link to their Supervisory Report, which describes the trainwreck and the $13.9 trillion of FED and FDIC loans and guarantees. http://www.fdic/regulations/examinat...9/si_sum09.pdf The answer to your questions is yes I understand the idea of debt, loans and so forth. In 2008, these committments were about $6.8 trillion and now they are $13.9 trillion and it is not over yet. The Fed does not have the power to undertake debt without it being fully secured. In other words, they are not allowed to loan money, where they might lose money. The problem at the moment is that all of this debt is junk and cannot be priced. This report describes how things went wrong and how much the rescue plan includes, but it does not estimate the losses. You might also ask how the Banks are able to return Tarp money (they are doing so because of the bonus restrictions on their salaries). This TARP money was never used to save borrowers or support mortgages, it was used to do things like buying Bear Stearns and Merrill. The banks are able to pass their stress test because they used unrealistic unemployment figures in the 8.5% range. Had they used 10%, the stress tests would fail. We are already at 10% and climbing. The stress tests also do not include for failures such as the $460 Billion that is coming due in the next few years for leveraged loans for such things as Las vegas Casinos, which are filing for Bankruptcy, as well as Commercial loan failures and the rapid deterioration of the conventional loan market.

My point is that lumping together short term credit facilities and longer term bail-outs make no sense as they have completely different risk profiles. The commercial paper and money market facilities that were critical when market liquidity effectively froze in 4th quarter of last year are now not very important and very low risk. They constitute 2.4 trillion of your total. These facilities are three times the size of the TARP but much lower risk.

And to address your first question - who authorized these facilities? The Congress did when it enacted the 33 and 34 Acts as modified.

[tengers]

RickSP, the programs that you mention form part of what has been the most staggering underwriting of debt ever perpetrated by this government or any government for that matter. Currently, the taxpayer has become the banker of last resort to the entire financial industry. No one knows what the writedown on the $13.9 trillion will be in the end, that is the reason that the normal lenders siezed up in the market. But one thing for sure, there will be a writedown and it will be a lot and that writedown will be added to the national debt.

Generally, I believe that this underwriting by the taxpayer should have come with systemic changes. Systemic changes does not mean putting the people in charge who created the problem, or worse yet, repairing the firms that took the economy down and keeping them as huge risks. What should have been done was this:

1. Restore Glass Steagall.

2. Limit the leverage available to credit providing institutions to about 10 to 1.

3. Large Banks are Systemic risks. Limit their size to 3 to 5% of total market.

4. Derivatives and Credit Swaps should be openly traded.

5. Moody's and the other bond raters need to be taken to the wood shed.

6. All writedowns in the $13.9 Trillion Government Support facility should be recovered from the people who created them on Wall Street and in the financial industry via a low interest 30 year loan, just like the rest of us.

7. There should be caps on executive bonuses and compensation for companies that lose money and that compensation should have a 2 to 3 year rest period before it is paid out to see if it was all BS in the first place. Companies that have not repaid their losses to the Government for the underwritings will have compensation limited to $3 million for executive officers.

8. The US must phave an overall balance of trade or our economy will not work.

9. Do not put the Federal reserve in charge of Systemic Risk analysis. They failed at this job.

[RickSp]

Tengers you are right on a number of your points but much of your language is overblown.

No one knows what the writedown on the $13.9 trillion will be in the end, that is the reason that the normal lenders siezed up in the market. But one thing for sure, there will be a writedown and it will be a lot and that writedown will be added to the national debt.

You are right - no one knows what the write off will be, so your statement about adding to the national debt is speculation at best. The prior major bailout - during the Reagan era savings and loan debacle - ended up turning a profit for the taxpayers.

Your statement about why the credit markets froze is simply wrong. As I have pointed out twice now, the commercial paper and money market facilities were a response to the collapse of short term lending, not its cause. The $13.9 trillion dollar figure you keep quoting is a mix of long term and short term facilities with highly different risk profiles. The taxpayer is probably at risk for about half that amount - still a huge exposure. Nevertheless overstating the problem doesn't add much to the discussion.

All TARP recipients are current on the their interest payments to the government. The bailouts were loans not gifts. The first of the TARP funds are being paid back to the government. There are still considerable problems and risks to be addressed but playing Chicken Little is just silly.

New and tough regulations are of the capital markets are required, particularly regarding derivatives. That is the place to start.

[tengers]

RickSP, a reasonable estimate of losses in the asset backed markets (real estate etc) would be about 30%. But as I said, no one knows what this stuff is worth and here are the reasons.

1. We got rid of mark to market and now let financial institutions evaluate their own portfolios. This means that there will be a great temptation to not recognize reality.

2. The only people in the market to buy junk is the Government and they are buying junk at great speed. This means that the markets that you see out there contains a huge buyer, who is not buying on the basis of worth, they are buying to sop up the market. If that buyer wasn't there, the Market would fall to its true worth and that incidentally would be the most merciful thing that could be done. Imagine if the Arab nations were all buying oil at $150/barrel to keep the price up.

3. I will respond to your comment that we could turn a profit off all of this with some other predictions. The S&L crisis ended up costing the US taxpayer about 50 cents on the dollar or roughly $150 Billion. We entered the Iraq War with a prediction that the Iraqi oil revenues would pay for the whole thing. We even canned the General who thought otherwise. That war has a cost of $3 trillion and it is rising. Mr. Clinton predicted that the entire National debt would be eradicated by 2009 as a result of the surpluses that were being generated in tax revenue. Mr. Bush made short work of that prediction. Lastly, it would be incredibly naive to think that the Federal Government is going to throw $13.9 trillion dollars into the air and come back with $16 Trillion dollars in this den of vipers. If this were possible, others would be lining up in droves. I do not object to stabilizing the economy, but there are no real systemic improvements being made. We need Glass Steagull and the other repairs, or ones like them to fix this mess. Obama is trying to cure the economy, but he is using the same guys who bled the patient and used voodoo. All they did was make the patient sicker.

[RickSp]

Quote by: tengers RickSP, a reasonable estimate of losses in the asset backed markets (real estate etc) would be about 30%. But as I said, no one knows what this stuff is worth and here are the reasons. 1. We got rid of mark to market and now let financial institutions evaluate their own portfolios. This means that there will be a great temptation to not recognize reality.

That is funny. You've got it almost backward. Part of the problem was that the new mark to market regulations imposed by FAS 157 which were only adopted in November of 2007, and general havoc because it effectively forced illiquid assets to be marked to near zero which helped precipitate the panic. Several times during 2008 and 2009 the SEC and FASB eased and clarified the mark to market rules to avoid liquidation pricing. Mark to market regulations under FAS157 are still in place but are not as draconian has they had been.

Quote by: tengers 2. The only people in the market to buy junk is the Government and they are buying junk at great speed. This means that the markets that you see out there contains a huge buyer, who is not buying on the basis of worth, they are buying to sop up the market. If that buyer wasn't there, the Market would fall to its true worth and that incidentally would be the most merciful thing that could be done. Imagine if the Arab nations were all buying oil at $150/barrel to keep the price up.

I see you are not letting facts interfere with your argument. The government is not buying the so called "toxic assets". The "Legacy loan" program that was proposed has effectively been scrapped. Banks have written off over half of the really bad stuff and are working their way through the rest. How well they will do, remains to be seen. That being said, your claims about the government buying don't bear any relationship to reality.

Quote by: tengers 3. I will respond to your comment that we could turn a profit off all of this with some other predictions. The S&L crisis ended up costing the US taxpayer about 50 cents on the dollar or roughly $150 Billion. We entered the Iraq War with a prediction that the Iraqi oil revenues would pay for the whole thing. We even canned the General who thought otherwise. That war has a cost of $3 trillion and it is rising. Mr. Clinton predicted that the entire National debt would be eradicated by 2009 as a result of the surpluses that were being generated in tax revenue. Mr. Bush made short work of that prediction. Lastly, it would be incredibly naive to think that the Federal Government is going to throw $13.9 trillion dollars into the air and come back with $16 Trillion dollars in this den of vipers. If this were possible, others would be lining up in droves. I do not object to stabilizing the economy, but there are no real systemic improvements being made. We need Glass Steagull and the other repairs, or ones like them to fix this mess. Obama is trying to cure the economy, but he is using the same guys who bled the patient and used voodoo. All they did was make the patient sicker.

Well that was an interesting rant. You threw the whole kitchen sink in there didn't you? The sky is not falling.

We do need more and better regulation and oversight - on that much we agree.

[tengers]

RickSP, let's climb to 40,000 ft and look down. There is a little town on the Eastern side of the United States. Everyone is lined up there because the people there are passing out $13.9 Trillion dollars. Some of it says return tomorrow and we'll let you borrow it again, some says return in 30 days, some says return in 90 days, some says keep it until you can pay it back, some says we are going to buy up securities and mortgages to help keep up a market for this stuff, some are outright payments to buy stock in defunct institutions. It is the only real game in town and it has been orchestrated by the Financial institutions because they don't want to own the bubble.No one wants to own the bubble.

In 1980, the Dow was at 1,000. In 2006, it was at 14,000. Today it is at 8500. The Dow and all investments in this nation are supported by payments on loans. That is where our money comes from. Wages in 2009, after adjustment for inflation are about 3 times what they were in 1980. That means we can support a Dow that might be 4 to 5 times what it was in 1980, if we are productive. The Dow has fallen by 40%. If the Government wasn't in the markets to the tune of $13.9 trillion , where do you think the Dow would be? It would not be at 8500, it would be at 5000 because that is all the stream of payments from wage earners can support. The bubble needs to deflate and the price of houses and other things along with it until it meets the underlying wage base. Alternatively, you can raise wages and inflate the currency and reduce the value of old debt, but you can't have both.

Here is an article about the effect of Mark to Market rule changes on folks like Citibank. FASB Changes Fair-Value, Mark-to-Market Accounting Standards | FASB Rule Changes.

Incidentally, that $13.9 Trillion is a stack of dollar bills 700,000 miles tall.That is not some minor event that just requires a little regulation. It requires that the investors who made $13 trillion in a 4 year bubble, lose it.

[RickSp]

I note that the article on you linked to on mark to market agrees with my previous comments.

Your obsession the number 13.9 trillion is interesting. It isn't particularly meaningful but you seem to like to repeat it. But that is your problem not mine.

[tengers]

Quote by: RickSp I note that the article on you linked to on mark to market agrees with my previous comments. Your obsession the number 13.9 trillion is interesting. It isn't particularly meaningful but you seem to like to repeat it. But that is your problem not mine.

I find it interesting that anyone could view using 100% of the next 7 years of the Federal government's total tax receipts for a bailout as inconsequential. .I don't know exactly when the country took total leave of its financial senses, but it did. In any event, others also find this rather disturbing, but perhaps we are just those silly old fashioned people who think that living within your means is what you are supposed to do.

Bailout By The Numbers: Total Fed Committments Now Total $13.9 ... - Gross Domestic Product , Government

[RickSp]

As I have said more than once, you are lumping lots of different sorts of facilities together with all sorts of different risks and obligations. A commercial paper facility is not a bail-out even if it is $1.8 trillion dollars.

Your obsession with meaningless figures doesn't impress me.

[tengers]

RickSP, a Commercial Paper facility that trades on a market is a free market facility. A Commercial Paper market that freezes is a good indication that there is no market or that the market is so tainted that no one wants to trade there. That is as it should be. That market will immediately re-evaluate itself, sort itself out, and life will go on. We have a market now, but that market now includes the Government. The market is no longer determining the price of anything along the lines of supply and demand, but it is more along the lines of securing votes or being a pacifier for a public that did unproductive things with its money.

Our free market system was intended to be separate from Government (other than taxation and regulation), but Government was not supposed to be the key buyer of GM or Citi stock. The lumping that I am doing is the lumping of things that the Government is putting into the market, particularly where they are purchasing things that do not make economic sense. When Fannie and Freddie buy up securities that no one wants, they distort the market and you have no longer have any idea what the product is worth. Oil prices immediately collapsed when the market disappeared. That is the way a free market works. If one doesn't want a free market and instead seeks a manipulated market, then that is what you will get. I don't think this is a great idea, particularly on this scale, as we are simply moving the bubble instead of letting it deflate.

[RickSp]

Yo T. Yes, I know what commercial paper is and quite a bit more besides. You still have your facts jumbled, but if you don't care why should I? And if you want to believe the sky is falling, knock yourself out.

[tengers]

The sky is neither falling, nor is there really anything fundamentally wrong with the country. The farms are there, the factories are there, people believe in their currency and they have a roof over their head, The only thing amiss is that people are being told that every man, woman and child in the country must borrow and then contribute $46,000 to the save the large banker fund or the country will collapse.and that is not true.