Resistance Begins at Ohm!

Saturday, February 20, 2010

TARP and the deficit

The Troubled Asset Relief Program (TARP) was designed to infuse money onto bank balance sheets, replacing the assets that fell through the bottom due to the mortgage crisis. Alternatives could have been to change the way that those assets are valued (smoke and mirrors accounting), lower the standards we hold banks to for having "cash on hand," outright buying the junk, seizing the banks (bankrupt - LOL) and probably some others, but TARP is what we did. If we didn't do anything, we still would have spent that money ($700 billion or so) and maybe more to people who lost their deposits when the banks went bust.

TARP was a very substantial outlay of taxpayer money. The idea was it would be paid back. And quite a bit of it has been paid back. Because of the way the government does their budget, they can't keep TARP funds on the books as a taxpayer asset. In other words, the budget doesn't treat the money we gave to banks as a loan. If we did, then the money coming back would be applied to the line where the money went out in the first place. And, TARP would not look like another $700 billion added to the deficit. So, what to do with the money when it comes back?

TARP is NOT the recovery act, that was another $800+ BILLION on top of TARP. We don't get the recovery act money back. It's just money down the drain so to speak.

Congress and Obama want to redirect the money to other programs (what we might call pork or earmarks or whatever, some ideas might even be reasonable). The thing is, Congress did not authorize any other expenditure with that money. That is what the recovery act was all about. And given that the deficit is freakin scary right now ($1.75 Trillion in 2010 alone), you might think it would be a program worthy of the money. What to do with TARP? Pay down the deficit, duh!!!! No act of Congress required, best as I can figure.

Instead, Obama and congress want to treat it like an unappropriated slush fund for whatever voter group is unhappy (or not so unhappy) at the moment. Unappropriated, as in no act of congress, no vote you can hold your representative accountable for, is ever taken. Is this how you want the government to think of your money??? It's YOUR money! This is a bunch of Washington politicians that want you to think like they do. "Hey look here, I just found $1.5 billion on the sidewalk that fell out of the TARP bucket on the way back from the bank. Free money, whoopie!!!"

But what if there are programs that are more important than the deficit (hard for me to imagine)? Well, I believe that Congress would have to approve it just like any other expenditure. I guess our democratic leadership figures once it is out of your pocket, you shouldn't have a say in what happens.

Let me put this in some kind of personal perspective. Obama wants to take $1.5 billion and add it to the hundreds of millions set aside to help homeowners struggling with their mortgages. Forget that they can't spend the money they already have because no one likes the terms. Let's say there are 175,000,000 people employed right now. That comes down to $857 per worker. You were supposed to be giddy about the $200 that the government sent you early last year (even though it was a loan on your income tax). But you aren't supposed to be upset about $857 you now owe, plus interest? Or put another way, whatever your personal problems might be, can you see yourself asking each one of your working friends and neighbors for $857 to help you out (they have problems too, you know)?

This is the "it's not my money" problem with having the federal government running your life. It IS your money. It is inherently unfair. People who do the right things to take care of themselves are punished and the people who do dumb things are rescued from their own stupidity.

Someone called it privatizing the profits and socializing the losses, as it applies to business, like the banks with the bogus assets on their books. When federal, state and local governments are taking a third to a half of your income, I don't think you can say any profits are being privatized.

This is a new kind of "share the wealth" concept. The government is going to take $857 out of your pocket and give it to another person (not some public asset like a road). The beneficiary hasn't been asked to pay into the program in order to get the benefit (like social security, medicare/aid or unemployment). It's just free money. It goes (back) to the bank, by the way, but hey it's money the home borrower doesn't have to pay. And what a sweet program for the banks. The government loans them money, they pay it back. Then the government gives them back the money, no strings attached. Why not? Not my money.

If people had to write a check for what they are paying in taxes, I think it would be much clearer.
It comes out of our paychecks before we even touch it.
The bank pays it as part of our mortgage.
It is just another item on your cash register receipt at the grocery store.
It is on the bill of sale at the dealer (hey, it's cheaper than a sunroof, right?).
So we don't think about it and we never add it all up. Hey, it's not like our money where you need to make a conscious decision to spend or not spend. When did you ever total all of these little invasions of your wallet over the course of a year? If you had to actually open your wallet and use your ATM, debit or cash to pay each and every one of those little tax bills, would you feel any different?

Take the idea a step further. Let's say that instead of paying those taxes, they are just going to go on a credit card. You can pay a little each month. The balance on the credit card will keep going up, but your payments will increase by a smaller amount. The monthly payment isn't so painful. Or maybe it is, but the alternative, sell everything and pay off the credit card is more painful. Sooner or later, that monthly payment is going to be painful. Right now, your balance, whether you are working or not, is $40,000. Who do you think is going to pay that bill? Money from heaven? In 20 years it will be more like $100,000. And eventually, your credit is going to get cut off and you will not only have the monthly bill, but you will need to pay cash for those little tax bills you are happy ignoring today. That is the national debt. One huge balance on a credit card that will soak up all of your money just to pay the interest. Monthly bill? Try about $700 for at least 10 years. Yup, interest does that to you - doubles the payment, doubles the pain.

So... which would you prefer, a substantial payment against your credit card bill, or maybe just give it to the guy next door who signed an ARM mortgage thinking he was going to flip the house and make a cool $500K? I know my answer.

Drowning in Debt, what it means to you.

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