Thursday, January 08, 2009

Bailout Update

If you take a closer look at the bailout numbers, you will find that it is now exceeding $2 Trillion, with more expected by the Obama administration yet to be announced.

Scott Snider, partner and chair of the government relations and public policy practice at Steptoe & Johnson, Washington, D.C., says $365 billion will be spent on the Troubled Asset Relief Program (TARP). Not all of this money has been spent yet. $125 billion has been promised to "other banks" like those corporations that are becoming banks to qualify for bailout money. (i.e. GMAC). $15 billon of that money was claimed when the government released $7.58 billion to Pittsburgh-based PNC Services Financial Group, Inc., $3.41 billion to Fifth Third Bancorp and $1.3 billion to SunTrust Banks, Inc., including others. $20 billion of the TARP money is being used as seed money for the government’s Term Asset-Backed Securities Loan Facility (TALF) program, under which the Federal Reserve will extend up to $200 billion in non-recourse loans to holders of asset-backed securities (ABS) backed by consumer and small business loans in a bid to free up the ABS market.

After the Bear Stearns' $29 billion bailout in March, was the $200 billion government takeover of mortgage finance giants Fannie Mae and Freddie Mac in early September, AIG for $152.5 billion (more than $127.5 billion has already been spent out of that) then Citigroup for $325 billion. $16.7 billion was spent in other FDIC takeovers of more than 20 banks Washington Mutual was the largetst. Now we are up to $1.1 trillion, not including the remaining $180 billion TARP not yet included in the calculation. There is $1.4 trillion in a commercial paper funding facility, $320 billion for the FHA, $659 billion in money market guarantees and $9 billion in student loan guarantees. The total is another $2.4 trillion.

We thought that the $700 billion number tossed around at the beginning of the crisis was a lot of money. Somehow our government has decided it has a bottomless checking account. So we need to get ready for some serious economic consequences not too far down the road. Stay out of debt, including your mortgage, become financially independent by saving aggressively and intelligently, lower your lifestyle as low as possible, and batten down the hatches.

Monday, January 05, 2009

Bad Bailouts, Good Americans

By Robert P. Fry, Jr.

"I used to have my own construction company," a taxi driver named Bruce explained. "We built houses here locally in Birmingham."

"How big was the company," I asked, "How many houses did you typically build?"

"Anywhere from 10 to 15 or so per year."

"What happened?"

"We had a project going last year with 15 lots. We'd put in all the roads and sewers and had about 9 houses built when everything just stopped dead in its tracks…No buyers. And more than that. No phone calls, no inquiries, no agents calling, nothing. The market for new houses simply died."

"So what did you do?" I asked.

"I'm still not sure that I handled it all correctly," he began. "Ourproblem was the debt on the property. The interest cost was roughly $1,000 per day. So even though we stopped all of our other expenses, there was nothing we could do about that. But we had some other assets. So we started selling things to make the payments. Finally, we got so desperate, we sold my son's Corvette and, after that, the condo in which he was living while attending the University of Alabama.

"I never thought I would have to do something like that," hecontinued, "but the corvette was worth $25,000, which meant we could pay the bank for another month. But even after that, we ran out of money. So we went to the bank and started giving them the unsold houses in lieu of cash every time we got behind on the payments. When we finally ran out of houses to give them, we had no choice but to give them the remaining land and then file for bankruptcy."
"That didn't solve all the problems," Bruce explained, "since we still needed to put food on the table and had other bills to pay. So late last year I leased a cab and started driving. That has worked out pretty well; the cab has really been a blessing. So I decided to buy this cab just a couple of months ago."

Bruce, who looks to be about 50-something – with a daughter out of college and a Corvette-less son who's a sophomore in college – works all night Friday and Saturday, gets up in the afternoon Saturday to watch a little football and gets up Sunday morning to go to church, then starts making runs to the Birmingham airport around 4:30 Monday morning. I heard not one word of complaint about his new life, just the simple statement, "The cab has been a real blessing."
There were, of course, some good chuckles about that. With the move from business owner to cab driver, he admits that some of his friends and family haven't known what to say to him.

"What are you doing these days, Bruce?" my friends ask.

"I'm driving a cab."

"Oh. (Long pause.)…What kind of team do you think the Tide will have this year?"
But Bruce doesn't seem to care much about "what the neighbors say." He cares about what his family says. When it came to selling the Corvette, Bruce told me, "Taking my son for a drive and telling him that I needed to sell his car was probably the lowest and most difficult moment of my life."

"We had done everything that we could for our kids and I was worried that I might have raised some sort of runny nosed-kid who needed a Corvette and would never be able to support himself. In addition to selling his car, we sold the condo where he was living and couldn't even help him pay the rent on his apartment so he had to get a job while going to school."
Bruce then told me how his son had gotten a job and was still doing great in school and now calls him regularly just to ask, "How are things going, Dad?"

At which point I said to Bruce, "So was it worth going intobankruptcy, just to learn that you have a son who is actually astand-up man?"

After a moment's reflection, Bruce smiled, "Yes it was."

Bruce and his family and friends – people who get up every day and do what they need to do to provide for their families and to be good members of their communities – represent all that is still good in America. They are honorable people who spend all that they have to pay their debts, even if, like Bruce, it ultimately leads to bankruptcy. And when their businesses fail and life must go on, they take whatever job they can find to put food on the table.

How unlike the whiny, self-indulgent, profiteers who guided Wall Street's leading investment banks onto the shoals of insolvency. These people, who have nearly destroyed America's banking system, should be acknowledging their failures. Instead, they are demanding ever more of our resources, and of our children's resources, as the price for not making things even worse.
America would be better served if Hank Paulson were driving a cab in Manhattan, instead of trying to give billions of dollars of other peoples' money to his friends and colleagues on Wall Street. As a cab driver, there is some possibility that he would learn the value of a dollar, the importance of community and the inherent dignity of all good work. At the very least, we would all be $700 billion better off, less tips.

Fry is a writer for Agora Financial