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Thread: The Bailout worked? (AIG = Government Profit)

  1. #1

    Default The Bailout worked? (AIG = Government Profit)

    Making the rounds today, in bailout circles, is the news that the Treasury is officially out of AIG. Treasury made $22.7b profit on the $182.3 bailout investment. It's worth pointing out here that conventional wisdom during the meltdown, was that we'd be unable recover all of the money, never mind actually turn a profit on it.

    Fun fact: $22.7b is enough to run the entire Legislative branch for the last four years, plus some leftover money for arts and crafts appropriations. So I guess that they kind of paid their way with that one.



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    Maybe this should be in the Economic Forum? Add that to the list of other net returns for the government:
    http://www.nytimes.com/2011/03/31/business/31tarp.html
    On Wednesday, the Treasury said that KeyCorp and SunTrust Banks repaid their bailout funds, helping the government claim a $6 billion profit on the bailout program for banks. The Treasury projects it will receive another $14 billion as hundreds of smaller banks repay their bailout funds.

    The Treasury is also claiming it will make a $12 billion profit when it winds down its 92 percent ownership stake in the American International Group later this year, although for now that is only on paper. It also assumes that large stake can be sold at current prices, even though unloading such a big position could depress its value.

    Those gains could also disappear if several big losses materialize. The Treasury projects the bailouts of General Motors, Chrysler and Ally Financial could cost it about $15 billion, while losses from the government’s beleaguered mortgage modification programs, like HAMP, could wind up reaching $46 billion. (With only about $1 billion of HAMP funds disbursed so far, bailout watchers say the actual loses could be sharply lower.)

    Still, the TARP bailout was only one part of the government’s rescue. Counting other federal aid programs allows the administration to radically reduce its overall cost of the effort.

    As part of its analysis, the Treasury included in its profit estimates about $1.2 billion from fees it collected from federal guarantees on money market mutual funds during the crisis. It also included realized gains of $22.5 billion from a series of Federal Reserve emergency aid programs designed to get credit flowing again.

    But the bulk of its gains come from a bounce-back in the value of more than $1.6 trillion in mortgage bonds and other debt that the government bought as the financial crisis worsened between 2008 and early 2010, in an effort to prop up the housing market. The Treasury has realized about $13.5 billion in income from interest payments of these bonds through the end of 2010, while the Federal Reserve has earned about $72.5 billion on a similar portfolio of securities backed by Fannie Mae and Freddie Mac. Treasury officials project they will collect at least another $16 billion over the next few years.
    http://www.bloomberg.com/news/2010-1...reasuries.html
    The U.S. government’s bailout of financial firms through the Troubled Asset Relief Program provided taxpayers with higher returns than yields paid on 30- year Treasury bonds -- enough money to fund the Securities and Exchange Commission for the next two decades.

    The government has earned $25.2 billion on its investment of $309 billion in banks and insurance companies, an 8.2 percent return over two years, according to data compiled by Bloomberg. That beat U.S. Treasuries, high-yield savings accounts, money- market funds and certificates of deposit. Investing in the stock market or gold would have paid off better.

    When the government first announced its intention to plow funds into the nation’s banks in October 2008 to resuscitate the financial system, many expected it to lose hundreds of billions of dollars. Two years later TARP’s bank and insurance investments have made money, and about two-thirds of the funds have been paid back. Yet Democrats are struggling to turn those gains into political capital, and the indirect costs of propping up banks
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    Sounds like BS. How does paying back a few dozen billion dollars equal trillions that the Fed bought in mortgages and such with funy money?

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    Quote Originally Posted by carclinic View Post
    Sounds like BS. How does paying back a few dozen billion dollars equal trillions that the Fed bought in mortgages and such with funy money?
    Oh, those were open market operations. Noone profited from that. Especially not the banks.

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    And by the way, if the Fed would cover all my losses at Roulette, I could make a profit too
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    Quote Originally Posted by bxm042 View Post
    Oh, those were open market operations. Noone profited from that. Especially not the banks.

    (sarcasm!)
    The Fed has been making profits on those as well- and the Fed turns profits after their expenses over to the US Treasury.

    http://www.nytimes.com/2012/01/11/bu...-treasury.html
    WASHINGTON — The Federal Reserve said on Tuesday that it contributed $76.9 billion in profits to the Treasury Department last year, slightly less than its record 2010 transfer but much more than in any other previous year.

    The Fed is required by law to turn over its profits to the Treasury each year, a highly lucrative byproduct of the central bank’s continuing campaign to stimulate economic growth.

    Almost 97 percent of the Fed’s income was generated by interest payments on its investment portfolio, including $2.5 trillion in Treasury securities and mortgage-backed securities, which it has amassed in an effort to decrease borrowing costs for businesses and consumers by reducing long-term interest rates.

    Through those purchases, the central bank has become the largest single investor in federal debt and securities issued by the government-owned mortgage finance companies Fannie Mae and Freddie Mac. As a consequence, most of the money flowing into the Fed’s coffers comes from taxpayers.
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    Quote Originally Posted by Zippyjuan View Post
    The Fed has been making profits on those as well- and the Fed turns profits after their expenses over to the US Treasury.

    http://www.nytimes.com/2012/01/11/bu...-treasury.html
    This is quite dishonest to say.

    If I print money and buy interest baring assets it would be hard for me to show anything but a gain.

    Not that I believe they will ever sell what they own, if they did, it would show the massive losses they are holding due to the toxic assets they purchased from the failing banking system. We don't even know what they bought and at what prices. These losses are passed on to the tax payers through inflation, unless you believe the Federal Government will pay those losses back to the fed's banks.

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    Quote Originally Posted by Zippyjuan View Post
    The Fed has been making profits on those as well- and the Fed turns profits after their expenses over to the US Treasury.

    http://www.nytimes.com/2012/01/11/bu...-treasury.html
    Oh please...The fed has cornered the market on treasuries. Of course they will book paper profits. Now lets see what happens to those profits if they try to unwind the biggest trade in history. Oh wait, they can't and will not ever unwind their balance sheet. To the moon alice! Yep, that balance sheet will go past 3 trillion and never look back.

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    Well, let's see. That's about a 12.5% profit in about 4 years and I'm just gonna make a ball-park estimate here, but let's say the dollars loses about 3 to 4% of its purchasing power each year. So, then, well did they really profit or did they just break even?
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    Quote Originally Posted by jclay2 View Post
    Oh please...The fed has cornered the market on treasuries. Of course they will book paper profits. Now lets see what happens to those profits if they try to unwind the biggest trade in history. Oh wait, they can't and will not ever unwind their balance sheet. To the moon alice! Yep, that balance sheet will go past 3 trillion and never look back.
    The Fed has about eleven percent of all US Treasuries at $1.65 trillion worth. They have not been net buyers of them since June 2011, though with Operation Twist they have been taking the money they receive from maturing short treasury notes and using them to buy (or trade for) longer term Treasuries. Meanwhile, the Treasury has had to raise new debt (not just replacing old ones like the ones the Fed rolled over) of at least $1.5 trillion since then. Somebody else has been buying all that. However, they (the Fed) are about out of short term notes and may again start outright purchases of new ones (could be an announcement in the next day or so at their meeting this week). As for $3 trillion, that looks possible. They are at $2.8 trillion now. http://www.federalreserve.gov/releases/h41/current/ and buying $40 billion in mortgage securities a month.
    Last edited by Zippyjuan; 12-11-2012 at 08:49 PM.
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    Quote Originally Posted by cubical View Post
    This is quite dishonest to say.

    If I print money and buy interest baring assets it would be hard for me to show anything but a gain.

    Not that I believe they will ever sell what they own, if they did, it would show the massive losses they are holding due to the toxic assets they purchased from the failing banking system. We don't even know what they bought and at what prices. These losses are passed on to the tax payers through inflation, unless you believe the Federal Government will pay those losses back to the fed's banks.
    I agree it will be hard for them to sell- unless there is some major unforseen event (I can't think of anything at all), I expect them to hold most of them until maturity and unload in that fashion. If they need to pull back on the economy because it is heating up, I would expect them to be more likely to raise interest rates than to sell their holdings.
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    Quote Originally Posted by Zippyjuan View Post
    The Fed has about eleven percent of all US Treasuries at $1.65 trillion worth. They have not been net buyers of them since June 2011, though with Operation Twist they have been taking the money they receive from maturing short treasury notes and using them to buy (or trade for) longer term Treasuries. Meanwhile, the Treasury has had to raise new debt (not just replacing old ones like the ones the Fed rolled over) of at least $1.5 trillion since then. Somebody else has been buying all that. However, they (the Fed) are about out of short term notes and may again start outright purchases of new ones (could be an announcement in the next day or so at their meeting this week). As for $3 trillion, that looks possible. They are at $2.8 trillion now. http://www.federalreserve.gov/releases/h41/current/ and buying $40 billion in mortgage securities a month.
    On a duration weighted basis, the fed has been buying up pretty much all the net new issuance. And going forward with QE infinite, the balance sheet will expand to new and freightening levels. I stand by my statement. I work in short term interest rates, and I can tell you, the Fed will sell at considerably worse prices than anything they paid for their garbage. Which is consequently why they will never get out. The Fed will kill the currency before admit defeat with their purchases.

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    Money has a time value; at the rate that the Fed prints, money has a pretty high time value.

    In real (not nominal) terms, the Treasury took a significant loss on this one. And I'm sure we have not yet heard the other side of the story.
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    the bailout was more than just bailing out AIG. They also had to bail out all the other banks that AIG had insured, so AIG would not have to pay out on the policies. The bailout was for 700B, and there still is 240B that is to be payed back.

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    If some of the bailout has been paid back, why hasn't our deficit gone down?

    Who gave us the money for the bailout?

    How is the profits gained for the AIG bailout not real profits as Schiff and others argue?

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    The deficit has actually gone down. It has declined from $1.3 trillion a year to an estimated $1.1 trillion this year. Of course if money gets paid back but is then spent on something else, the deficit will not change and could go up if more was spent.
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    Quote Originally Posted by fmbl24 View Post
    How is the profits gained for the AIG bailout not real profits as Schiff and others argue?
    Oh? Schiff claimed the profits were real?
    I am subscribed to Schiff on youtube, I never saw him make such a claim.

    AIG may have made profits, but that is because they sold insurance policies they could not cover, and then the US taxpayers covered those policies for them, when the unthinkable happened, and all the policies they had sold thinking it impossible to have to pay all at once, became reality in 2008. But the treasury certainly has not made a profit yet. Maybe on the AIG bailout, but not on the entire bailout.

    And I am using the term "insured" loosely. The instruments were more complex than just insurance policies, but in the end... yeah, AIG sold insurance against wall street losses, a financial hurricane of epic proportions hit wall street, AIG couldn't pay everyone, (could hardly pay anyone, because they were hit by the hurricane as well) everybody was under water, AIG said "help, help, pay our clients for us, or the world will end!"

    Taxpayers give all the clients the money to cover their losses, AIG doesn't have to pay out, also has free cash from bailout to reinvest, AIG continues old policies.
    Last edited by UWDude; 12-12-2012 at 05:09 PM.

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    Schiff would argue that those profits were not real, I'm just trying to understand why?

    Did China give us the money for the bailout or did we print the money?

    Is anyone here for the bailout or was it, as I understand, a terrible a mistake? If so, how was it a mistake? Especially with AIG showing profit?

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    Quote Originally Posted by Zippyjuan View Post
    The deficit has actually gone down. It has declined from $1.3 trillion a year to an estimated $1.1 trillion this year. Of course if money gets paid back but is then spent on something else, the deficit will not change and could go up if more was spent.
    The real deficit is closer to $5 trillion
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    Why would anybody be happy AIG showed profit, after an operation that, to date, still has taxpayers 240 Billion in the hole? Not to mention, that the other 460 Billion was loaned over 4 years ago.

    That's opportunity cost. While all those banks were using that 460 Billion to get their acts together, that money was doing nothing for the taxpayers. Just because the treasury got a measly $22 billion or whatever, doesn't mean we did anything but take a huge loss.


    Is anyone here for the bailout
    I highly doubt it.

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    Just a question: How is paying interest to the Fed, which then gives that money back to the Treasury a "profit?" That's like me giving my brother $10 and him giving me the $10 back and me saying I made $10 that day.

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    Quote Originally Posted by bxm042 View Post
    The real deficit is closer to $5 trillion
    How do you figure? The entire budget isn't even $5 trillion. It is between $3 and $3.5 trillion.
    Last edited by Zippyjuan; 12-12-2012 at 05:46 PM.
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    Okay here's what (should have) happened in 2008. (a rough breakdown)

    Housing prices were inflated up to a point, the bubble popped, and suddenly people were in mortgage situations that were way over their heads. Now, in a free market, the companies that made bad lending decisions would have been forced to declare bankruptcy, leaving the next-in-line competitors to come in and buy up toxic assets at reduced rates. Liquidation, in other words. It would have worked somewhat like an auction where people buy stuff cheap and hope to re-sell the goods for a profit, just not for as much as the goods had gone for before. --- so yeah, liquidation.

    For the homeowner and the new 'top dog' company, they *might* have been able to re-negotiate previously inflated mortgages to a more acceptable level. This would have been a win-win for everyone. The home buyer gets to stay in his home with a mortgage he can afford payments on. The new mortgage holder gets to make a profit off of assets that were bought relatively dirt-cheap from a now-bankrupt AIG. Everyone lived happily ever after. The end.

    What actually happened?

    Government stepped in and bought toxic assets off of AIG's hands (and numerous others). For the company on Wall Street, this meant they got off the hook. But the homeowner? [okay he's not actually an owner until the mortgage is paid off, but let's not get too technical] His home value just got shored up by a government bailout! With no relief and still in over his head, he's faced with foreclosure. And forclose they did.

    The panic was all over housing prices falling when the market was indicating that prices needed to fall. Now, if you're an investor in real estate, falling prices is a bad thing. But if you're a homeowner who is simply looking at either keeping a roof over his head or getting tossed into the street, cheaper house-payments aren't exactly a bad thing. Sure, you aren't going to 'flip' the house and move out and turn a profit (like we thought was just going to go on and on forever indefinitely), but, yeah, at least you have a roof over your head.

    Want a summary in the form of a cheesy football analogy?

    AIG is still in the game after the referee (the market) tried to throw them out. The homeowner is still trying to figure out if he should stay for the rest of the game or leave the stadium now and try to beat traffic. And the Fed is still coaching every team making sure no one makes any plays that aren't planned in advance. Not much of a game if you already know who's gonna win, is it?
    Last edited by nobody's_hero; 12-12-2012 at 05:54 PM.
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    Quote Originally Posted by Zippyjuan View Post
    How do you figure? The entire budget isn't even $5 trillion. It is between $3 and $3.5 trillion.
    http://usatoday30.usatoday.com/news/...ing/55179748/1

    The big difference between the official deficit and standard accounting: Congress exempts itself from including the cost of promised retirement benefits. Yet companies, states and local governments must include retirement commitments in financial statements, as required by federal law and private boards that set accounting rules.
    The deficit was $5 trillion last year under those rules. The official number was $1.3 trillion. Liabilities for Social Security, Medicare and other retirement programs rose by $3.7 trillion in 2011, according to government actuaries, but the amount was not registered on the government's books.
    These are the sort of accounting tricks which would land the CEO's of private companies in prison, but it's ok when Congress does it
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    Quote Originally Posted by Zippyjuan View Post
    I agree it will be hard for them to sell- unless there is some major unforseen event (I can't think of anything at all), I expect them to hold most of them until maturity and unload in that fashion. If they need to pull back on the economy because it is heating up, I would expect them to be more likely to raise interest rates than to sell their holdings.
    We would have to be able to sell Treasuries to Martians.
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    Step 1: Collect Underpants
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    Never knew this would really work!

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    Quote Originally Posted by bxm042 View Post
    http://usatoday30.usatoday.com/news/...ing/55179748/1



    These are the sort of accounting tricks which would land the CEO's of private companies in prison, but it's ok when Congress does it
    Interesting. But should the future benefits I qualify for by working and paying taxes this year but will not be paid anything of this year count as this year's expenses? I am not retired and receiving any such payments today and could possibly be dead before I collect any of those benefits. Those are potential costs- not realized costs. I MIGHT get the money. Or I might not. If you promise to buy a car from me ten years from now, should you count that as one of your expenses for this year against this year's income? How many years into the future should those potential benefits be extrapolated? If I qualify for say $100 a month for life after age 60 this year (but won't retire for 20 years) and think I may live to 90 and have 35 years to collect, should that count as $1200 (the annual benefit qualified for) or my entire life expectancy? What it will cost will depend on when I retire and how long I live after I retire. How can you calaculate that? Should that potential future cost have to be budgeted out of today's tax revenues when there will also be future tax revenues at that time? Do you take those into account as well or just the expenses side?
    Last edited by Zippyjuan; 12-12-2012 at 07:52 PM.
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    Quote Originally Posted by Zippyjuan View Post
    Interesting. But should the future benefits I qualify for by working and paying taxes this year but will not be paid anything of this year count as this year's expenses? I am not retired and receiving any such payments today and could possibly be dead before I collect any of those benefits. Those are potential costs- not realized costs. I MIGHT get the money. Or I might not. If you promise to buy a car from me ten years from now, should you count that as one of your expenses for this year against this year's income? How many years into the future should those potential benefits be extrapolated? If I qualify for say $100 a month for life after age 60 this year (but won't retire for 20 years) and think I may live to 90 and have 35 years to collect, should that count as $1200 (the annual benefit qualified for) or my entire life expectancy? What it will cost will depend on when I retire and how long I live after I retire. How can you calaculate that? Should that potential future cost have to be budgeted out of today's tax revenues when there will also be future tax revenues at that time? Do you take those into account as well or just the expenses side?
    Just because its tricky doesn't mean that the debt obligation isn't there. You don't just say "These trillions and trillions of debt obligations are kind of hard to predict precisely, so we're just going to put a big fat zero on that for our deficit calculations, k?"

    Every other company and organization manages to account for these sorts of retirement costs just fine, using GAAP. And in fact all companies and organizations are actually required to account for these sorts of requirement costs. Except for the Federal Government of course.

    And by the way, you're right. A lot of these costs won't be realized. The USA will have gone bankrupt, dissolved, or hyperinflated, long before most of these costs come to realization. (I won't ever see a dime of the money I've put in)

    If you promise to buy a car from me ten years from now, should you count that as one of your expenses for this year against this year's income?
    Absolutely. At least according to GAAP you should. (Properly amortized and all that, I'm no accountant).

    But they don't even count these numbers in their total debt obligations. The 16 trillion is a fraction of their real debt obligations. Were it any other company, it would be called fraud, but with the FedGov, that's just 'Merica for ya
    Last edited by bxm042; 12-12-2012 at 08:44 PM.
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  30. #29

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    Sure it worked. It worked perfectly. You had money and now government and big corporations got your money.

    YOU-(inflation, taxes)-government-(baliout)-corporations.....


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    I'm becoming increasingly convinced that not only will we see the collapse of the dollar in the next 10 years, but we will also see World War III.

    When the central banks around the world start dumping the dollar as a reserve currency... I consider it highly likely that the US will go to war to stop it. We've started wars for much less.
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