Thursday, April 22, 2010


Don't you hate it when you're trying to have a conversation, trying to reply to a comment, and you realize you've gone passed the character limit?

Happens to me quite often no matter how brief and economical I try to be with the words.

Anyway, there's this awesome cat, Lodo Grdzak, who classes up my joint every once in a while. I always appreciate when he stops by to leave a comment because even though we disagree on a lot of things, he's always thoughtful and writes intelligently. Seriously, this guy has some great perspective, an original voice, great stories and amazing taste in music. Really, if I wasn't already married... Well, I highly suggest you make his blog a regular stop in your RSS reader.

So why do I bring this up? Well I'm glad I asked.

Lodo dropped by recently and commented on my previous post re: Goldman Sachs. Here it is in it's entirety:
As a bit of a digression, I couldn't help but notice you failed to mention the billions of dollars made by the government in the TARP bailouts. Not only was all TARP money paid back; but at a huge profit to the government. Even Citi's loan (the most volatile of the banks) would yield a $10 billion profit to the government if we cashed-in our Citi stock now. But the government's waiting 'cause we'll make a lot more money than that. Obama's handling of the financial crisis (the worst since the Depression--'caused by Libertarian speculators that didn't want SEC oversight within the financial institutions) has been nothing short of genius. Particularly when you consider he handled it while planning war strategy in Afghanistan, passed health care reform (easy task I know), and had to appoint a Supreme Court judge. GM has paid back close to $2 billion dollars of their loan, and once they start selling stock again, the government's gonna clean up on that deal. All while maintaining 900,000 jobs. When you're wrong, you're wrong. And you should admit that the bailouts worked and retract comments you've made in the past that said they wouldn't.
I started to respond, but again ran out of characters. So I wanted to get this out there as a new post because, wow, there are a lot of claims in all of that.

I'll try to respond to each the best I can. But let me start by saying everyone should go easy on the Obama Koolaid. It's potent stuff.

I won't call the TARP campaign a "success" as such. Yes, companies have been saved. But we have succeeded in saving companies that should not have been saved in the first place. We have continued a precedence that started in the 1970s, where the government puts a ton of money behind a failed busies keeping it alive long after it should have died. These zombie corporations only serve to encourage bad/risky behavior by other business down the line.

If a company has no fear of being buried, it has no reason to act responsibly. John Q. Taxpayer is always there to bail them out as long as you grease the right palms in Washington. Hey, don't take my word for it. People much smarter than me have already pointed this out. I'm just the messenger, man.Secondly, in regards to the success of the bailouts, I think it's important to note that the TARP program was "only" $700 billion. Yes, that is an insane amount of money to waste on zombie corporations. But keep in mind that amount is a fraction of the $12 TRILLION committed in all of the bailout schemes.

The assertion that GM has totally repaid it's TARP loan is somewhat true. The problem is that, of the $50 billion that GM borrowed, it repaid only $6.7 billion in cash. The rest, was "repaid" in equity in the company, which means that the US Government owns 60 percent of post-bankruptcy GM. Since that stock is no longer traded, you can't really peg a value to that 60% holding, but it sure as hell isn't worth $43 billion (last trade was for 75 cents a share).

Furthermore, I'm sorry but saying that TARP has been totally repaid is just incorrect. According to ProPublica, just over $391 billion was disbursed, of which more than $186 billion is still outstanding. If you include Fannie Mae and Freddie Mac in that, there's another $119 billion outstanding, bringing the total to over $300 billion that still needs to be repaid.

Regarding Citi, I'm not sure what Lodo's source was, but again according to ProPublica, Citigroup took $45 billion from the government and has returned about $23 billion, leaving them $22 billion in debt to us taxpayers. It's difficult to accept that we would realize a $10 billion profit "if we would cash in our stock" because the stock would immediately resume its downward spiral if the government decided to sell it.

Lodo also points out that the government-owned companies have seen nice stock gains, or at least stable stocks. This shouldn't be a surprise. Taking the investor's point of view, buying stock in a company owned by the US Government is pretty much a sure thing. Since we have a couple of years before our government is crushed under the fiscal weight of entitlements, bailouts and pork spending, investors can rest assured that companies owned by the government have been and will be bailed out of any mismanagement. At least until society completely breaks down in 2012 and we all get jobs as Road Warriors.

However, you should keep you eye on those stocks if/when Uncle Sam decides to sell.

As for the jobs situation, The Bureau of Labor Statistics recently reported that nearly half of states are still reporting increases in unemployment. Unemployment is still above 9 percent nationally, so it's still too soon to congratulate Obama on his masterful handling of jobs and employment policy.

The war stuff? Well, we're still at war, we'll have troops in the Iraq and Afghanistan for the foreseeable future, and Obama supporters don't seem to care about that now that it's their guy in office.

Anyway, the upshot of all of this it that we're a long way from me admitting I was wrong about the bailouts.

EDTI. — In response a question about citing Pro Publica as as source, they are an independent group of journalists and one of the few highly credible information sources on the Internet. Here's what they say in their About page:
ProPublica is an independent, non-profit newsroom that produces investigative journalism in the public interest. Our work focuses exclusively on truly important stories, stories with “moral force.” We do this by producing journalism that shines a light on exploitation of the weak by the strong and on the failures of those with power to vindicate the trust placed in them.
I strongly suggest you begin frequenting their website.

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  1. The question, of course, is where all this bailout/TARP money came from? It wasn't like it was lying around. It was created through borrowing it from others, i.e. the Chinese. All it did was kick the can down the road.

    Second, Lodo ignores the hidden costs of the lack of capital for other enterprises. You cannot spend the same money on different things. Money that went to buy GM is not available to loan to other investors/entities with sound business plans.

    BTW, when you factor in those who've exhausted their unemployment benefits and who are too discouraged to seek work (who are not counted in unemployment statistics) the more accurate unemployment rate is around 20%

    Finally, if you really want to brighten your day, read this and the pdf file linked there, as well as this Forbes article.


  2. Maybe Lodo can explain how these banks/firms went from the edge of bankruptcy to paying themselves billions in bonuses without the rest of the economy rebounding and unemployment still going up. One thing they did with bailout money was buying government bonds with taxpayer money and drawing guaranteed interest,in essence loaning the money back to the government and charging for it. Also if bailouts were so magically great, I'd like Lodo to give credit go G.W.Bush who did the first batch of them

  3. Im really flattered that I inspired a post--as you well know, Im a regular reader.

    Im somewhat surprised that you decided to use ProPublica as your source on...well basically all of your talking points. No offense but...who or what is ProPublica?

    In regards to GM, I never asserted that they paid back their entire loan. In fact, I only gave them credit for $2 billion; when in fact, they've paid closer to $8 billion. I said once their stock is offered, the government will be paid back handsomely (have you tracked Ford's stock in the last 9-10 months?).

    I'll admit the GM loan is/was far riskier than Citi's loan. In regards to Citi, its pretty-much established (as of yesterday's closing price anyway) that the Citi deal would yield $10 billion profit if the gov sold its stock. You're right that they wont (not yet) and I think your reasoning is sound. But in fairness, I think I also mentioned that they're going to wait.

    Finally, I'm glad you brought up the Bureau of Labor Stats employment outlook. There's way too many people on this planet, and with 1 billion Chinese and another 700,000 Indian laborers on the market, life ain't worth much anymore. China's got one thing right for sure--(1) child per family is plenty. Get a pet if you need more love in your life. What the hell these young people think they're going to do with themselves as adults is beyond me.

  4. Lodo wrote
    [ I said once their stock is offered, the government will be paid back handsomely (have you tracked Ford's stock in the last 9-10 months?).]

    So you think that a company that took ZERO taxpayer dollars during the auto industry bailout can be compared to a company that took billions, and hasn't paid it back.


    Ford stock went up because people bought from a company that did business responsibly.

  5. Good point on the procreation, Lodo. Unfortunately, we live in a country where having 8 kids gets you a lucrative "reality" TV contract and 20 minutes of celebrity, which is all any American seems to want these days.

  6. Again Emawck:

    Im genuinely flattered by your shout-out. You've been blogging a long time--more power to you. We are brothers in that regard as well as in nationality.


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