Cartoon: IMF Head Arrested

More Bailouts

"There will be no more taxpayer-funded bailouts. Period.”

Barack Obama, 7/21/10 at the Dodd-Frank signing ceremony

“There will be no more taxpayer-funded bailouts. Period.” How long will this Obama promise last? Well, The New York Times reports today that “the Obama administration on Wednesday pumped $3 billion into programs intended to stop the unemployed from losing their homes,” including a program announced by the Department of Housing and Urban Development that “will draw on $1 billion authorized by the new financial overhaul law.” That’s right. The Dodd-Frank “no more taxpayer-funded bailouts forever” bill is not even a month old, and already President Obama is using it to turn your tax dollars into yet another bailout.

And why is the Obama administration turning to Dodd-Frank bailout funds so soon after passage? Because its original mortgage bailout plan, the Home Affordable Modification Program (HAMP), has been a complete failure.

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The Bailout Era

The Renaissance. The Age of Enlightenment. The Industrial Revolution. The Gilded Age. The Cold War. The Information Age.

The Bailout Age?

The printing press already has its own prominent place in history, so we’re not sure what else to call the first couple decades of the new millennium. But after this morning’s news, there’s little debate: time to fire it up!

The European Union (EU) and International Monetary Fund (IMF) announced a plan that comes straight out of the United States’ playbook: smother debt flare-ups with truckloads of “free money” while the central bank manipulates rates.

European leaders unveiled a $957 billion plan to save themselves and their currency. Here’s the quick and dirty:

The EU will pony up $560 billion in new loans and $76 billion in existing deals for the GIIPS nations (as we’ve taken to calling them…no reason to give pigs such a bad rap)

The IMF says its ready with $321 billion

The European Central Bank (ECB) has abandoned its old stance (and credibility) by launching a program to purchase government and corporate debt.

“This is like pouring Chanel No. 5 on a French ‘lady of the evening,’” Rob Parenteau wrote us early this morning, “after a night of wanton debauchery.”

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Three Classes of American Business

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Cartoon: Capitalism and Bailouts

Cartoon: Thanksgiving, Bailouts, and Rescues

Big Banks: TARP and Bonuses

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Bailouts

Bailout Costs: $835 Billion This Year

The federal government is likely to spend $835 billion this year fighting the crises in the financial system and the economy, according to a new report by the Congressional Budget Office.

That spending represents about 6% of the nation's gross domestic product.

Of that amount, $340 billion is going toward the Troubled Asset Relief Program, which is being used primarily to bail out banks, insurers and the auto industry. Another $290 billion in 2009 outlays is being used to prop up mortgage giants Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500).

In addition, $187 billion is being used for economic stimulus and relief efforts such as extended unemployment insurance....

But over the long-term, CBO said, much greater pressure will bear down on the federal budget -- raising "fundamental questions about economic sustainability." That's because, barring any changes, federal debt is on track to greatly outpace economic growth over time.

The main culprits are the growth in federal spending on Medicare and Medicaid and, to a much lesser degree, Social Security. The growth rate in spending on those entitlement programs is due to two factors: the growth rate in health care spending and an increasing number of Americans growing old.

Today roughly 5% of GDP is spent on Medicare and Medicaid. By 2035, the CBO estimates, that number will double. The jump in Social Security spending is projected to rise from under 5% of GDP today to 6% by 2035.

read the CNN article

Bailouts v. Historical Events

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Other big ticket items:

• Marshall Plan: Cost: $12.7 billion, Inflation Adjusted Cost: $115.3 billion
• Louisiana Purchase: Cost: $15 million, Inflation Adjusted Cost: $217 billion
• Race to the Moon: Cost: $36.4 billion, Inflation Adjusted Cost: $237 billion
• S&L Crisis: Cost: $153 billion, Inflation Adjusted Cost: $256 billion
• Korean War: Cost: $54 billion, Inflation Adjusted Cost: $454 billion
• The New Deal: Cost: $32 billion (Est), Inflation Adjusted Cost: $500 billion (Est)
• Invasion of Iraq: Cost: $551b, Inflation Adjusted Cost: $597 billion
• Vietnam War: Cost: $111 billion, Inflation Adjusted Cost: $698 billion
• NASA: Cost: $416.7 billion, Inflation Adjusted Cost: $851.2 billion

TOTAL: $3.92 trillion

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Cartoon: Wall Street Bailout

Cartoon: Bailouts and Golden Parachutes

Cartoon; Bank Bailouts

Politicians Bought and Paid For?

President Obama received $4.3 million in campaign contributions from employees of these financial companies. Senator Chris Dodd of Connecticut, chairman of the Senate Committee on Banking, Housing and Urban Affairs received almost $850,000 in campaign contributions from these banks. Senator Max Baucus of Montana, chairman of the Senate Finance Committee received nearly $270,000 in campaign contributions from those same financial institutions in the 2007-2008-election cycle. All told, Senate members on these two committees were the recipients of $5.2 million in campaign contributions from the banks that ended up receiving TARP money.

Combined, the 161 financial institutions that have received $305 billion, so far, in TARP funds contributed about $37.5 million to candidates in last year’s election, and almost $76.7 million in lobbying expenditures in 2008. In total, therefore, these companies shelled out $114.2 million dollars to gain the ears of those running for or holding political office. In other words, these institutions, as a group, earned a more than 2,500 percent return on their “investment” in influencing the political process that resulted in a third-of-a-trillion dollar bank bailout thus far...

But, inevitably, many of those who have been winning friends and influencing people in the halls of Washington politics will end up coming out on top. Money talks, and it always does when it affects the ability of politicians to run for and stay in office.

read the entire essay

Bank of America Troubles

Reeling from previously undisclosed losses from its Merrill Lynch & Co. acquisition, Bank of America Corp. received an emergency capital injection of $20 billion from the Treasury, which will also backstop about $118 billion of assets at the bank.

Details of the agreement were released early Friday. In exchange for the extra capital, Bank of America agreed to cut its dividend to a penny, comply with executive compensation limitations and begin a mortgage loan modification program. The U.S. will receive warrants, fees and an 8% dividend on preferred stock.

"These times continue to be increasingly difficult on all of us," said Bank of America Chief Executive Kenneth Lewis Friday in announcing a fourth-quarter loss of $1.79 billion.
Counting $25 billion in rescue funds already received, Bank of America's $45 billion in federal aid matches the amount given to New York rival Citigroup Inc.

read the Wall Street Journal article