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Government Spending Spree
I’ve had a number of questions lately about all the money our illustrious government is throwing at all their programs to stimulate this economy. Let me take some time here to identify those programs that I’m aware of and what the cost/potential benefit appears to be right now. Of course this can change in a heartbeat so don’t cast any of this in stone just yet:
1) Economic Stimulus – This includes temporary employment tax cuts, government spending, and incentives for energy, research and infrastructure investment. So far less than 10% of funds have been disbursed. By summer 2010 it’s expected about 70% will have been disbursed. This is the $787 billion in Treasury outlays we heard about early on.
2) Troubled Asset Relief Program (TARP) – This includes four specific programs at a cost of up to $700 billion. Much of this may be recovered and up to $590 billion has already been “pledged.” First, there’s the loans and loan guarantees to distressed corporations like Bank of America, AIG, Citigroup, Chrysler, GM and a number of auto parts makers. Bank of America says it’ll repay their loans by late 2009. So far $150 billion in loans and loan guarantees have been extended. Second, there’s the Capital Purchase Program. This includes cash infusions in exchange for ownership stakes in AIG, Citigroup, B of A, Goldman Sachs and about 500 other banks. Much of this is through the purchase of preferred stock. So far, $218 billion has been “invested” and if shares increase in value, taxpayers may benefit. A handful of banks have already repurchased their shares. Many of the larger ones are eager to do so but the White House (who obviously knows best) fears doing so would limit credit availability. Third, we have the Homeowner Affordability & Stability Plan which includes subsidies and incentives for mortgage modifications plus help for communities and displaced renters. Up to $75 billion will be pumped into this pool. Guidelines have been established and contracts with loan servicers have been signed but no mortgages have been modified yet. Finally we have the Small Business Administration Loan Purchase Program for SBA guaranteed loans. This could cost about $15 billion but so far very little interest has been expressed by holders of these loans. Probably because the small business community is weathering this storm fairly well so far.
Let’s move on to some freestanding programs partially funded through TARP:
1) Term Asset-Backed Securities Loan Facility (TALF) is a Federal Reserve nonrecourse loan program that will support loans to private investors who purchase securities backed by car loans, credit card debt, small business and other loans. About $55 billion of Treasury loan guarantees will be made by the Fed over the near term. However, this one could grow as high as $500 billion. So far only $5 billion in loans and loan guarantees have been extended under the original $20 billion program. The $35 billion program extension for securities backed by vehicle fleet loans and business equipment loans is pending. That’s the $55 billion total mentioned previously. Much of this could be recovered as loans are paid off.
2) Public-Private Investment Program represents Treasury funds used to match private investor equity funds (50-50 spit) and finance the purchase of mortgage backed securities and other assets. The Treasury outlay is expected to reach $100 billion this year and could eclipse $1 trillion before it’s all over. There is profit potential here for the taxpayer if the investment values (i.e. primarily real estate values) grow going forward. Not all will be lost on this program.
Finally we have a few other programs that are a bit less broad in scope:
1) Federal Reserve credit line for AIG using their troubled assets as security. What they are currently worth is anyone’s guess. This is currently a $60 billion Fed liability and unless these asset values get back to more reasonable levels, all could be lost. That’s very doubtful though. Much of this is expected to be recovered as asset values change.
2) Assistance to Fannie Mae and Freddie Mac to the tune of about $400 billion with profit potential. About $60 billion has been provided so far and authority to provide more expires at the end of this year. Again, as asset valuations get back to more reasonable levels, much of this could at least be recovered.
3) Commercial Paper Funding Facility carries a potential liability of $1.8 trillion. These are direct loans from the Federal Reserve to corporations. As of April 02, the Fed held about $250 billion in such loans. When the economy recovers and begins the next ascent these loans will likely be repaid. Am I a bit optimistic? Maybe.
4) The Fed Money Market Investor Funding Facility represents loans to mutual funds to purchase commercial paper. These are typically bond type funds and the potential Fed liability is about $540 billion when all is said and done. So far the program hasn’t been used which backs up the statement that “when all is said and done, more is said than done.”
Well this sums up what I know so far. I know it’s a lot to absorb but it’s our money so I thought you’d be interested in how it’s being used or abused depending on your overall view of the current Administration. I’ll keep you posted as more news comes out but on the surface it’s probably not as bad as it seems so far.