So we set aside up to $700 billion to spend on TARP.  Of the first $247 billion that was spent, it's estimated that the ultimate real value of the assets purchased was $183 billion.  So a net loss of $64 billion. 

In all the talk of the scale of this bailout, people have generally been assuming that the $700 billion was all burned money.  A few people suggested we might make money on it which was a pretty ridiculous notion.  But if ultimately we end up only losing $175 billion in this bailout, that's pretty good.  I mean yeah, it'd be nice if we didn't spend anything, but I'm willing to pay $175 billion to get the credit markets back in order.

It's also possible that the final numbers will be better.  It's likely that the worst assets would be the first to be addressed in the TARP bailout.  So hopefully we'll see some improvement as the program moves forward.  We'll see...

It's worth noting that today, the performance of several car manufacturers was announced.  Their US sales were as follows:

• Toyota - Down 37% year over year
• GM - Down 31% year over year
• Ford - Down 32% year over year
• Chrysler - Down 53% year over year

Now for all that it was played up that some how the big three American car manufacturers are offering crappy inferior products, and that's why they are screwed, they actually did better (or perhaps less bad) than Toyota with the exception of Chrysler.  Chrysler has been struggling for a long time now, so I expect they'll disappear before long even if they are kept alive through the downturn for other reasons. 

The reason that the big three are in so much worse shape than companies like Toyota is simply that they have a larger focus on US sales.  Toyota sells more cars outside of the US market than any of the big three, so their exposure to this down turn is lessened.  If there was a major down turn in Japan, you can expect that Toyota would take a bigger hit than GM, Ford, or Chrysler. 

There are also a number of other factors that hurt the big three that have little to do with their current day to day operations.  They have a legacy of retirement benefits to older workers that makes their production costs much higher.  They also have to pay for medical coverage in the US that would be covered by the government in Japan.  There's been an attempt to blame unions, but the difference in pay scale between union and non-union workers in the US isn't all that large.  Certainly not large enough to suggest it has anything to do with the problems the big three are having now.

I've seen a few people pissed off about how we're giving Citigroup $300 billion in bailout funds, but that they've still got naming rights to the New York Mets' Citi Field.  Let's think about this for a moment though.  The core problem of all of the big banks right now is that they invested too damn much money into a bunch of BS assets.  The name of a baseball stadium has NOTHING to do with this.  

Citi bough rights to naming of the field because they believed, presumably, that the marketing value of having their name on the stadium would be valuable to the company.  Given how prevalent this practice has become, this seems a fairly safe conclusion, though investing in poorly understood CDO's was also prevalent, so maybe not.  But still it seems that their need to market and establish a brand does not change in the slightest if we're giving them $300 billion.  Presumably, given the hit they are taking in even being named as a bailout victim, they will need to work that much harder to have a good brand.  Lord knows I wouldn't put a dime into Citi.

What should really concern people is that one of Citi's more immediate reactions to their problems was to send out a notice to a number of their card holders.  The notice advised people that their interest rates would be increased and that if they opted out of the increase, their credit cards would be canceled at their expiration date.  Specifically:

Well, there you have it folks.  The bailout plan has just died on the floor of the House of Representatives.  Why?  Basically what happened is the Republicans in the House decided to outclever themselves.  They wanted to take what is an unpopular bill and dump it on the Democrats like a flaming bag of poo.  So rather than coming together for a show of unity to the markets, the Republicans came out and started voting against it.  Democrats, then voted against it as well to avoid being left holding said flaming bag.

So now we're back to square one.  The Dow is off by about 600 at the moment and this whole move has shaken confidence in the ability of our government to find a resolution to this.  It's not clear at this point Congress can come up with a new bill that is passable, or if Republicans are going to continue to play games for political advantage. 

In the end, what we're talking about, give or take some fine points, is going to involve the taxpayers writing a big check.  Whether it's buying bad assets, buying equity in these banks, or some other form, it will mean a bunch of money.  Whatever it's form, it will not be popular and so it has to be passed in a bipartisan fashion to provide political cover for everybody.  If Republicans want to insist on playing games with this, then there will be no bailout, and we'll get to see what doomsday scenario Paulson was predicting, up close and personal.

So thanks Republicans!  Good job at screwing this up.

Oh and for the record, remember McCain's little stunt to go avert the crisis.  Yeah, here's what his spokesman said before the vote today:


Update: Well apparently nobody wanted to hold their positions at the end of the day.  In the few minutes between when I wrote that and when the market closed, the Dow dropped down to a loss of 738 777 on the day.  Wheeeeee...

From Forbes on why it's a $700 billion bailout:

1. The value of the dollar will decline on world markets.  That will make commodities more expensive and put pressure on inflation
2. With the government, a nice safe place to put money, competing with the private market, it will push interest rates up.  Perhaps not much, but with a housing meltdown in full swing, the last thing we need is higher interest rates to further clobber demand
3. We'd be increasing our total national debt by roughly 7% and increase our total debt as a percentage of GDP to levels not seen since post WW2

What's worse is that Paulson's bold move here, in addition to the above problems if we do implement it, risks some problems if we don't.  If he asks for $700 billion but the government only comes out with a more reasonable amount, it could be perceived as inadequate now.  Even while we're injecting capital into the markets, it could have a negative psychological impact if it's not seen as sufficient by the markets.

It's also worth noting that, so far as we can gather the $700 billion was purely the product of Paulson's ass.  So not only do we not know if that's too much, we don't know if it's not enough.  Think about that.  Maybe $700 billion isn't enough to stabilize the markets.  How spooky is that?

One thing though that suggests to me this is a severe overreaction by Paulson is that the rest of the world doesn't seem to care.  If this is going to cause a global economic meltdown, how come we aren't seeing the EU, China, Saudi Arabia, etc, putting funds into this?  If we're on the brink of a true global collapse, you'd think these other players would be taking a more active role.  But they aren't.  Isn't that suspicious? 

I want to trust that these people know what they are doing but the more I hear about this, the more I'm beginning to doubt that.  It did provide me some comfort to see Buffet supporting things, but he's also supporting it while he puts $15 billion into Goldman Sachs.  So this may just be a play to his own interests here.  I mean if he puts $15 billion into Goldman and then they dump all their bad debt on the US government, he stands to make a killing.  Also, you know Goldman, if anybody, will be the last bank standing given Paulson's close ties to the company.

My sense, at this point is that a bailout is probably a good idea, but that the $700 billion is an overreach.  That something more like $200-300 billion would be plenty for the time being and could be supplemented later, along with necessary regulatory reforms.  Maybe, psychologically that doesn't seem as dramatic, but maybe that's a good thing.  I know for myself that $700 billion is creating more panic for me than it's resolving.

I've been hearing a few people talk about this bailout plan that's under discussion saying that it's Socialism.  No.  It's not.  From Wikipedia:

1. The initial plan called for no ownership of these companies, just handing them a giant ass check.  It's not clear if an equity stake in these companies will be part of the plan or not.
2. There is no attempt to administer these companies in any way.  It's giving them a huge ass check.
3. This is precisely the opposite of egalitarian, effectively rewarding the market for screwing this up at the expense of the average taxpayer
4. The entire plan has privatized the profit and rewards and socialized the costs.  If this were really socialism, we'd get both the up and downsides

Now, truth be told, you have to recognize that in the end, we're bailing ourselves out to an extent.  Sure there's a bunch of fat cat investors here who we'll be bailing out, but there's also pension funds, etc, that will be helped out by this.  Getting all high and mighty about punishing these companies sounds good on paper til you realize it's a kind of perverse fiscal masochism.  If the system collapses, the CEO's and high end investment bankers will still be filthy rich even if it's to a lesser degree.  It is you, I, and the rest of the average folks who are going to get screwed by all of this when our employers close up shop and our pension funds become insolvent. 

Incidentally, THIS is why you need a solid regulatory environment.  You see, what these people did was, for the most part, perfectly legal.  I here there's some FBI investigations going on, but overall this is the way the system was set up to work.  So there's no means to single out and punish the people most responsible because there's no legal structure for doing so.  Had there been legal limits in place, then these people might have second guessed what they were doing.  Had there been legal limits, we'd have recourse to punish those specifically responsible rather than contemplating punishing the whole system and ourselves with it.

In a socialist system, the government would be actively involved in managing all this.  I don't think that's a positive, broadly speaking, but if the choices are having a government managed system or having a system completely unrestrained by government that just gets a bigass bailout check when the shit hits the fan, I think I'd prefer socialism.  But truth be told what I'd prefer most of all is a well regulated capitalist system like we should have had in the first place.