Perot Charts » Federal Budget

TARP: Troubled Asset Relief Program or Wall Street Feeding Frenzy?

PerotCharts — Thu, 20 Nov 2008 00:00:00 +0000

The Emergency Economic Stabilization Act (more commonly known as the Wall Street Bailout Plan) was passed under the presumption that $700B was needed to buy up troubled assets such as mortgage backed securities (which is why the program was originally called TARP – for Troubled Asset Relief Program). The program was supposed to work by taking the troubled assets off the market and off bank balance sheets thereby enabling the banks to regain their footing and not be forced to sell these assets at fire sale prices. The plan was supposed to stop the downward price spiral of mortgage related securities, free up capital for loans, slow foreclosures and stabilize the financial markets. That was the plan anyway…

But the act placed very few restrictions on how the money could be used. So its not surprising that the use of the funds changed from purchasing troubled assets to direct injection of capital (taxpayer provided) into a handful of financial institutions who promised to make those funds available for loans. It now appears that some of those institutions have chosen to pay bonuses and dividends that they would not otherwise been able to afford without the injection of government funds.

Representative Henry Waxman (D. – California), Chairman of the House Committee on Government Oversight and Reform, sent this letter to Mr. Vikram Pandit, CEO of CitiBank. in which the Chairman observes:

Earlier this month, the Treasury Department announced plans to invest $125 billion of taxpayer funds in nine major banks, including yours, as an emergency measure to rebuild depleted capital. According to recent public filings, these nine banks have spent or reserved $108 billion for employee compensation and bonuses in the first nine months of 2008, nearly the same amount as last year.

Some experts have suggested that a significant percentage of this compensation could come in year-end bonuses and that the size of the bonuses will be significantly enhanced as a result of the infusion of taxpayer funds. According to one analyst, “Had it not been for the government’s help in refinancing their debt they may not have had the cash to pay bonuses.”

Chairman Waxman states that his committee will be investigating these claims and requested information from CitiBank.

For reference, the financial institutions which received TARP cash injections are listed below. The rest of the approximately $350M which has been spent so far under the program was used to shore up AIG (in the form of loans and purchase of troubled assets).


CAPITAL PURCHASE PROGRAM Transaction Report Updated on November 17, 2008; 4:30 PM
Date	Name of Institution	Amount
Date	Name of Institution	Amount
10/28/2008	Bank of America Corporation	$15,000,000,000
10/28/2008	Bank of New York Mellon Corporation	$3,000,000,000
10/28/2008	Citigroup Inc.	$25,000,000,000
10/28/2008	The Goldman Sachs Group, Inc.	$10,000,000,000
10/28/2008	JPMorgan Chase & Co.	$25,000,000,000
10/28/2008	Morgan Stanley	$10,000,000,000
10/28/2008	State Street Corporation	$2,000,000,000
10/28/2008	Wells Fargo & Company	$25,000,000,000
1/ 10/28/2008	Merrill Lynch & Co., Inc.	$10,000,000,000
11/14/2008	Bank of Commerce Holdings	$17,000,000
11/14/2008	1st FS Corporation	$16,369,000
11/14/2008	UCBH Holdings, Inc.	$298,737,000
11/14/2008	Northern Trust Corporation	$1,576,000,000
11/14/2008	SunTrust Banks, Inc.	$3,500,000,000
11/14/2008	Broadway Financial Corporation	$9,000,000
11/14/2008	Washington Federal Inc.	$200,000,000
11/14/2008	BB&T Corp.	$3,133,640,000
11/14/2008	Provident Bancshares Corp.	$151,500,000
11/14/2008	Umpqua Holdings Corp.	$214,181,000
11/14/2008	Comerica Inc.	$2,250,000,000
11/14/2008	Regions Financial Corp.	$3,500,000,000
11/14/2008	Capital One Financial Corporation	$3,555,199,000
11/14/2008	First Horizon National Corporation	$866,540,000
11/14/2008	Huntington Bancshares	$1,398,071,000
11/14/2008	KeyCorp	$2,500,000,000
11/14/2008	Valley National Bancorp	$300,000,000
11/14/2008	Zions Bancorporation	$1,400,000,000
11/14/2008	Marshall & Ilsley Corporation	$1,715,000,000
11/14/2008	U.S. Bancorp	$6,599,000,000
11/14/2008	TCF Financial Corporation	$361,172,000

The Main Street Rescue Plan

PerotCharts — Sun, 28 Sep 2008 06:52:13 +0000

The Main Street Rescue Plan

Congress will be voting on a revised Wall Street Bailout Plan as early as October 1, 2008. If you believe that Congress should be focusing on Main Street first, then please click here to send an email to your elected officials telling them you don’t want the government spending billions of dollars on bad loans.

Thanks to all who sent email to their elected officials. As you know, the bailout bill passed although it did contain some of the provisions in the Main Street Rescue Plan. We will be expanding our campaign to educate our elected officials on the consquences of run away debt and our unfunded social obligations in the near future.

Phase One – Immediate Action by U.S. Congress

1. Securities and Exchange Commission

Mandate that the SEC:

Suspend its “mark-to-market” accounting regulations that are causing the write-down of bank assets to fire-sale prices, and thereby contracting the supply of available investment capital.
Tightly restrict short sales of financial stocks.

2. Federal Deposit Insurance Corporation

Mandate that the FDIC:

Declare a national emergency during which time the FDIC will back depositors and general creditors of banks that fail and resolve those collapses in a way that does not cost depositors, such as selling deposits and loans of the failed institution to another institution.
Reconstitute the FDIC’s “net worth certificate” (NWC) program that Congress created in the 1980s for the savings and loan crisis of that era. The NWC required no federal subsidy or cash outlay. Under the NWC, the FDIC bought subordinated debentures in the bank and issued FDIC notes to the bank, with the interest being the exact same on both instruments. Under this program, the FDIC assesses the financial condition of banks and shores up weak ones that can survive if given time to resolve their problems and merges/liquidates those too weak for the NWC program. Under the NWC program, the FDIC will provide strict supervision of participating banks, including the employment of key personnel and their compensation, until the crisis has passed. Again, no federal subsidies or outlays are required.
Declare a 120-day moratorium on payment of dividends by banks. Executives of banks that need capital often worry that failing to pay dividends is a sign of financial instability. A temporary ban across-the-board will end fears and give FDIC time to strengthen banks’ capital base.
Expand FDIC insurance coverage to other financial institutions, including hedge funds, placed under federal regulation.

3. Stabilize Owner-Occupied Homes

Declare a 120-day moratorium on mortgage foreclosures. This will (a) keep families in their homes while components of the broader plan are put in place and the real economy is revived; (b) better ensure that the property does not fall into disrepair; and (c) reduce the decline in housing values created by unoccupied, foreclosed homes.
Devise a post-moratorium program to do work out plans for owner-occupied homes, including federal cash subsidies for owners that can pay for their homes if given time to financially survive this crisis.
Amend federal law so that federal bankruptcy judges are able to modify the terms of mortgages of homeowners in bankruptcy and thus give them more time to work through their financial problems and keep their homes.

4. Share Rescue Profits with U.S. Taxpayers

Whenever the government makes a loan or an equity investment in a distressed financial institution, such as the AIG deal, the public gets a share of any future recovery profits.
Create a true “Social Security Lockbox” for the warrants and equity the federal government acquires as part of this financial rescue. The goal is not long-term federal ownership, but to assist these organizations in returning to a sound operation and then make a prudent sale of the public equity.
Restrict the investment of those funds to AAA-rated state and local infrastructure bonds, which provide safe, long-term investments that will stimulate the real economy, create new jobs, and fiscally strengthen the Social Security System.

5. Oversight

Create an independent agency/board to oversee and manage the non-FDIC/SEC portions of the Rescue Plan and report to Congress on a regular basis. The Board would consist of:

Secretary of Treasury (Chair).
Chairman of the Federal Reserve Board,
Chairman of the FDIC,
Chairman of the SEC,
Comptroller General of the United States,
One appointee by each of the Majority and Minority Leaders of the House of Representatives and the U.S. Senate.

Create a new Joint Committee of Congress to oversee the plan and provide recommendations to Congress. The new Joint Committee would consist of representatives from all standing committees with partial jurisdiction for resolving this financial crisis. The goal is to involve all relevant committees in this rescue plan.

6. Create an Emergency Financial Crimes Office in the Department of Justice

The mission of this unit is to investigate any criminal acts that led to this crisis, hold the guilty accountable, and disgorge assets from individuals and institutions found guilty.
The head of the Office will be an experienced, non-political career prosecutor appointed by the President and confirmed by the U.S. Senate.
The Congress will provide sufficient funds to staff the Office with qualified attorneys and the necessary support staff of accountants and investigators.

Phase Two – Action by Congress Post-Election

7. Reinstitute a modernized Glass-Steagall Act, which covers and regulates all financial institutions including hedge funds

The goal is to restore prudence and accountability to the U.S. financial system through appropriate regulation.
Oversight of the financial rescue.

The Next President Will be a Slave to Bush Administration Fiscal Woes

PerotCharts — Wed, 13 Aug 2008 18:41:45 +0000

The following opinion by Jack Z. Smith of the Ft. Worth Star-Telegram was published on Friday, August 8, 2008:

The next president will be a slave to Bush administration fiscal woes

By Jack Z. Smith
jzsmith@star-telegram.com

The next president, whether it be Republican John McCain or Democrat Barack Obama, will be in handcuffs as he parades into the White House after his Jan. 20 inauguration.

He won’t be physically manacled. But he will be fiscally handcuffed from Day One as a result of the ideologically driven foolishness and sloppy excesses of President George W. Bush’s administration.
The White House is projecting a record federal budget deficit of $482 billion for the 2009 fiscal year that begins Oct. 1. Former Bush administration Treasury Secretary Paul O’Neill predicts a “mind-boggling number… upward of $500 billion.”

For the current fiscal year, the White House forecasts a $389 billion deficit.

Longtime budget hawk and former presidential candidate Ross Perot Sr. of Dallas notes that the national debt of nearly $9.6 trillion “is increasing by over one billion dollars every day.”

Perot’s observation is on a video on his new Web site, www.perotcharts.com. On it, he also offers this sobering observation: “We are leaving our children and grandchildren with a burden they cannot possibly manage.”

That is Bush’s sad legacy.

As a father and grandfather, it rankles me.

Oh, but Bush — the nation’s first MBA president, mind you — had such grand plans! His tax cuts for the rich would foster economic growth and job creation, resulting in more tax revenues, and everything would be rosy. The string of budget surpluses rung up by the Clinton administration would continue unabated.

But look where we are in the twilight of Bush’s tenure. America has experienced seven straight months of job losses. The housing crisis is the worst since the Great Depression. Energy and food prices have soared. An almost-anything-goes regulatory approach has produced an epidemic of bad subprime loans, spiraling credit-card debt and a tsunami of property foreclosures and bankruptcy filings.

The wages of many Americans aren’t keeping up with inflation. Millions of middle-class households from Florida to California have seen their net worth (assets minus liabilities) wither as a result of falling home values, higher personal debt and a shrinking 401(k) hammered by a declining stock market.

Republicans’ once-logical claim to being the party of small government has been eroded by Bush’s presidency. While the Bush tax cuts continue to restrict government revenues, spending has soared for entitlement programs such as Social Security and Medicare (including a costly new prescription drug program), defense, education and other departments.

Interest payments on the national debt totaled an enormous $377.3 billion during the first nine months of the current fiscal year — the fourth-highest spending category in the budget.

Meanwhile, Bush and Congress have failed to address the scary long-term funding shortfalls facing Social Security and Medicare.

That’s the biggest reason for Perot lamenting about “leaving our children and grandchildren with a burden they cannot possibly manage.”

Bush’s fiscal irresponsibility will handcuff the next president by limiting his options.

The new guy will have to spend much of his time just mopping up the mess.

Disappointingly, the policy positions espoused by McCain and Obama don’t provide the degree of fiscal sobriety that Washington must embrace. Neither candidate can deliver on all his promises, while simultaneously shrinking the deficits and meaningfully addressing Social Security and Medicare.

If you want the unvarnished truth about our fiscal foundering in Washington, you’d be better advised to turn to the Web sites of such budget watchdogs as the Concord Coalition or Perot.

McCain and Obama apparently don’t believe that they can get elected by fully prescribing the bitter medicinal cocktail — higher taxes and reduced spending — needed to cure the ills that Bush has foisted upon us.

War Related Appropriations for Defense vs. Yearly Budget Deficits (2002-2008)

PerotCharts — Mon, 23 Jun 2008 05:16:28 +0000

Estimates by the Congressional Budget Office place total funding for operations of the Iraq and Afghanistan War on Terrorism at $651 billion as of December 2007. This amount includes $87 billion of the $188 billion requested by the President for 2008. If Congress approves the remaining $101 billion for 2008, this will bring the seven-year total for the war to $752 billion. As can be seen from the chart, while these numbers have contributed to the deficits for the past seven years (just like all other forms of spending have contributed to the deficits), they were clearly not the difference between a deficit and surplus situation for the time period.

For more detail, see
[1] Analysis of the Growth in Funding for Operations in Iraq, Afghanistan, and Elsewhere in the War on Terrorism.
[2] Historical Tables, Budget of the United States Government, Fiscal Year 2009

Composition of Federal Spending and Taxes for 2007

PerotCharts — Thu, 22 May 2008 01:38:02 +0000

This chart illustrates how the $162 billion dollar deficit was created during the fiscal year that ended September 30, 2007. Simply put, spending exceeded taxes by $162 billion for the year. The federal government borrowed the additional $162 billion from the public during 2007, which brought the balance of the national debt held by the public to slightly over $5 trillion by the end of the year.

Composition of 2007 Federal Spending

PerotCharts — Thu, 22 May 2008 01:36:54 +0000

All of the broad spending categories of the 2007 federal budget have previously been mentioned or discussed in one or more of the budget charts. This chart assembles the major components to illustrate the actual spending for the fiscal year that ended September 30, 2007 during which the U.S. Government spent $2.73 trillion.

Non-Defense Discretionary Spending in 2007

PerotCharts — Thu, 22 May 2008 01:34:10 +0000

This chart illustrates the broad categories of spending for the Non-Defense portion of the Discretionary Spending category. [Discretionary Spending consists of two major components: Defense ($549 billion for 2007) and Non-Defense ($493 billion for 2007)]. Said another way, these are the amounts that the federal government spends on items other than entitlement programs, interest on the national debt and defense. Many of these categories are discussed separately in the Challenges section of this web site.

Discretionary Spending as a Percentage of Gross Domestic Product 1962 – 2007

PerotCharts — Thu, 22 May 2008 01:32:29 +0000

In this chart the blue line, Total Discretionary Spending, is the sum of the red line, Defense Spending plus the green line, Non-Defense Spending. For example, in 2007 Defense Spending was 3.9% of GDP while Non-Defense Spending was 3.6%. Therefore, Total Discretionary Spending was 7.5% of GDP as shown in the chart.

Non-Defense Spending has remained remarkably stable at an average of 3.9% of GDP—fluctuating in a very narrow band between 3.3% and 5.2% during the previous 46 years. As a result of the relatively flat line for Non-Defense spending, it easy to see that Defense Spending has been the victim of the “crowding out” effect of the increase in Mandatory Spending.

Defense Spending as a Percentage of Gross Domestic Product

PerotCharts — Thu, 22 May 2008 01:30:36 +0000

Over the past 40 years defense spending as a percentage of GDP has trended downward, although there have been peaks and valleys along the way. From a high of 9.5% of GDP in 1968 to the current level of 3.9%, defense spending has always been a hot topic of debate both inside and outside Washington. The so-called “Peace Dividend” beginning in the early 1990s at the end of the Cold War is clearly evident on this chart as is the increased military spending after the terrorist attacks of September 11, 2001.

Discretionary Spending: Defense v. Non-Defense

PerotCharts — Thu, 22 May 2008 01:28:53 +0000

Discretionary Spending is typically analyzed in terms of Defense Spending and Non-Defense Spending. The general pattern of the past 40 years finds that as Mandatory Spending has taken a larger proportion of the budget—and therefore, reduced the size of Discretionary Spending—the Defense Spending segment of the budget has absorbed much of the increased Mandatory Spending. This pattern will become clearer in the next two charts: Discretionary Spending: Defense vs. Non-Defense and Defense Spending as Percentage of Gross Domestic Product