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September 29, 2011

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The thing about the "bailouts" was that they were loans, not free money. The banks and automakers and insurers (AIG) that received these loans had to REPAY them. In fact the loans were repaid with interest. Not a high percentage rate to be sure, but as I understand it the government reports it made a profit.

And the downside to these bailouts was that the government got to take over partial control of the recipients until they paid back the loans! Government regulators got to decide who received raises or bonuses (hint: not the execs) and even forced some businesses to sell off parts of their company.

Unless you WANT Uncle Sam charging you interest and telling you how much of the rest your paycheck (after you make the minimum payment on their loan) you get to keep for yourself, and what items in your home you have to sell off, you do not want anything like the bailouts. Seriously.

I forgot to mention that if the bailouts were so great, consider the fact that most of the recipients tried to pay them back as quickly AS THE GOVERNMENT ALLOWED THEM! The banks, who notoriously do not want to give money to anybody but themselves, rushed to pay off their loans as quickly as the regulators allowed them to. The car manufacturers took a little longer, but they did the same. Lat time I bothered to check, AIG was still trying to finish paying off theirs, to get out from unde Uncle Sam's control. They were running low on subsidiaries to sell off to pay back their bailout.

@Robert- The people who were beneficiaries of the counter party swaps with AIG (like Goldman Sachs, Soc Gen, Barclays Bank, et al) all got paid 100 cents on the dollar thanks to the US Government.

Also bondholders and retirees didn't take any cuts in their principle or pensions thanks to the taxpayer.

If it were all loans, how come the US gov't debt levels jumped by 5 Trillion in 3-4 years?

If my information is not right please feel free to correct me constructively :-)

-Mike

I am rebuilding our emergency fund as it has gotten lower than I like it at the moment.

I've got a 6 month EF, with regular monthly deposits even though it's "full". Couple of times a year, I put the overage into a taxable index fund. Worst case for me and the market, I still have a "not zero" amount beyond 6 months expenses available. Best case, the taxable index converts from an extra EF to an early retirement fund.

If your earnings are in the top 5% of the US Population. You need to have a substantial Emergency Fund, as the great recession has shown that it MIGHT take a while to find a job. ALWAYS BE PREPARED! that's my Motto.

Currently at 15-months and still growing! I'm scared and can't seem to stop adding to it. :)

We have a dedicated e-fund that would last 4 months with our spending "as is", and probably 6-8 months of "bare bones". We also have savings that are earmarked for other things that we can and would use in a true emergency, for a total of 1 year of expenses. It definitely makes me feel better to have that security. Now that we have it however, I do think I need to move out of the "hoarding" mindset and figure out how to make additional savings work for us. It's a difficult switch!

"how come the US gov't debt levels jumped by 5 Trillion in 3-4 years?"

Fighting 2 foreign wars, tax cuts for everyone, a great recession and high unemployment undercutting all the tax revenues, increasing medicare costs, increased costs for unemployment and food stamps, more tax cuts and stimulus spending.


The government actually spent $580 billion on the bailout and has thus far received $345 billion in repayment. The remaining outstanding is not a total loss and the government is still owed money by companies that are likely to repay some or all of it.
http://www.propublica.org/ion/bailout

In 2008 the government revenue was about $2.5 trillion.
In 2009-2011 it was around $2.1 trillion per year. Thats $400 billion less revenue each year. Thats $1.2 trillion less revenue

Defense 2008 : $616B > 2011: $768B
medicare 2008 : $390B > 2011 : $494B
Income security 2008 : $431B > 2011 : $622B
Social security 2008 : $617B > 2011 : $748B (mostly from 2% tax cut)

total of 4 : 2008 = $2054B and 2011 = $2632B

So just looking at these major categories we've got abut $600B increased spending. At the same time theres $400B less revenue per year. That accounts for extra $1T deficit per year. And of course we didn't start out with a balanced budget to begin with.


All numbers from :
http://www.gpoaccess.gov/usbudget/fy12/hist.html]
2011 is estimated since the year is not yet done.

Lets break down income security spending into sub functions:

federal employee retirement & disability
$109B in 2008 to $127B in 2011 for +$18B increase
unemployment compensation
$45B to $134B = +89B
Housing assistance
$40B to $69B = +29B
food and nutrition assistance
$60B to $107B = +47B

p.s. sorry for wondering off on a tangent discussion. ;)

Jim,

This is great information, thanks for breaking it out.

It sounds like the gov't has no reserve capacity to continue any sort of bail outs given the structural deficit spending. It's gonna be ugly when the spending becomes balanced, the net change will feel like a depression.

That's why we need to get our personal savings rate as high as possible.

-Mike

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