Seeing Through Data

In a blog post the WSJ nonchalantly reported yesterday that TARP spending is project to increase by $61 billion in 2012. I don’t see a news story about the increase anywhere, and I don’t see the information reported by any non-financial mainstream media outlet.

TARP is short-hand for the Troubled Asset Relief Program — a/k/a The Bailouts — passed in 2008 and designed to prevent an American “lost decade” after financial market collapsed on real-estate loans.

References to the TARP usually infer a series of public and secret programs the Federal Reserve put in place to shore up the banking system, if not the working-class schmucks who use it.  These programs  include Maiden Lane, TALF, QEx, Operation Twist, and a basket of others.  Yesterday’s $61 billion announcement, however, is for the TARP alone.

It’s tough to shock the American public with huge figures anymore but $61 billion, that is $61,000,000,000, is a lot of money.

In comparison, the Dept. of Education has a budget of $59.8B, the Dept. of Transportation $59.7B, the Dept. of Justice $9.5B, the Dept. of Treasury itself $7.4B.  Most telling is the Small Business Administrations budget of $1.3B.  That is, we’re on-track to spend 47 times as much on reckless big businesses than we are on small businesses, which we know drive most new job creation.

Once upon a time, not so long ago, this would have caused a shock whereas now it causes a shrug.  Billions have become the new millions, and trillions the new billions.

If there is another Austin Powers movie produced Dr. Evil will inevitably pause, think, then demand one billion dollars staring at the audience to show that he remembers not to ask for only a million dollars.  Then somebody will smack him upside the head and he’ll his demand to one trillion dollars.

Some argue TARP was a success in that we don’t have breadlines, or at least not one’s as long as in the 1930′s.  Unemployment is lower than during the Depression, though when measured the same way it was back then not by as much as government announcements proclaim.  There is definitely less homelessness, though that may be more the result of building too many houses than TARP (lately the Occupy movement has taken to moving squatters into empties: it’s not even clear the banks care since somebody is at least then taking care of them).

Less than a year ago Speaker of the House Rep. John Boehner was bragging on his blog that the US was shutting down the TARP; looks like he changed his mind.

While the financial world has stabilized the shadow inventory — houses likely to eventually be auctioned — continues to grow.

It’s difficult to gauge the number of houses likely to flood the market.  In fact, it’s difficult to even gauge the number of mortgaged residential properties: the Census reports about 52 million owner-occupied mortgaged properties whereas the OCC reports about 54 million mortgaged properties total, including owner-occupied, rentals, and empties.  So we’ll just say that there are lots of them.

Auctioning these houses is likely to set off a chain-reaction landing us right back where we were in 2007-2008, if not worse because the country is basically broke and public sentiment towards economic policy can most generously be described as cynical.

Middle-class spending is the traditional engine that drives economic growth and it is not clear to what degree the TARP and related programs propped up the middle-class, though anecdotal evidence suggests support was more based on trickle-down theory; the notion that helping big businesses helps everybody else.

For example, Treasury made clear that late 2008 freeze in commercial paper caused a credible threat that some employers would miss payroll.  Since only enormous businesses would be using commercial paper to finance payroll — small businesses have to rely on cash — there was clearly a focus not only on Too Big To Fail banks, but also TBTF businesses, probably more widely than reported.

It isn’t clear who these companies are but it’s also not hard to take an educated guess.  For example, TALF reports that GE received enormous subsidies when the Federal Reserve purchased their sub-prime credit obligations at par.  GE lent private-label money at obscene interest rates; 30% was not unusual.  When borrowers predictably failed to repay GE was bailed-out by pretending their debt securities were worth par value, rather than forcing liquidation of those instruments and the company that funded them.

Market forced liquidation of the GE securities to vulture investors would have resulted in lower payments, adding real cash to the economy, but also put some number of GE employees out of work.  Of course, GE’s healthier units would have been purchased by other companies, probably for little money, since there was none at the time.  These acquiring businesses would have had a new corporate parent that wasn’t draining earnings to pay for bad consumer lending practices, freeing up capital to hire more people and increase growth.

Liquidating debt securities, and the companies that held them, at fire-sale auction prices would certainly have trickled-down to borrowers, including mortgage borrowers, albeit with some amount of economic destruction.  Exactly what would this balance look like?  I’m not sure: I’ve yet to see a detailed, objective study balancing the macroeconomic benefits of the lower debt loads balanced against the deleterious effect on business to achieve that deleveraging.