What’s a Few Billion between Friends?

I’ll keep a running list of articles here about the Bailout that I find interesting. Some of the links require a subscription to the Wall Street Journal Online.

This Reuters FactBox helped us see that the total bailout had grown to $1.6 trillion. Add to that the $787 Billion stimulus package, a proposed $275 Billion housing bailout package and Obama’s budget proposal that includes a whopping $1.75 Trillion dollar deficit – all of this funded with borrowed money. When one adds up these numbers, the last 6 months of Bush’s Presidency coupled with the first 18 months of Obama’s Presidency could (and likely will) result in $4.4 Trillion dollars added to our current $11 Trillion Dollar Deficit. A recent WSJ article indicated that the total bailout packages, summed up, could top 5 trillion dollars – looks like that article was more accurate that anyone knew. American Express is requesting $3.5 Billion in Aid while after pumping another $40 billion into AIG plus another $30 billion, a revised AIG Rescue of $150 billion is seen as a boon to other banks, such as Goldman Sachs, Merrill Lynch, UBS and Deutsche Bank. Banks are lending at a record pace but this isn’t easing the credit problems. The reason for this is because banks have plenty of cash, but as the housing market devalues, accounting rules force the banks to write down their asset base, creating book asset values that are lower than what they would normally be in a strong economy. Those lower values are exacerbating this crisis because they make the banks look worse off than they actually are.

This bailout has pushed the limit on who is a bank.  GMAC was successful in being declared a bank – even though they do little of what traditional banks do – so that they could get $5B in government aid.  American Express and others have done this too.

As municipalities experience less revenue, they also are lining up for bailout money. Some have temporarily declined to see those funds, but others continue to pursue a part of the $700B TARP (Emergency Economic Stabilization Act outlines the Troubled Assets Relief Program) package. GM, Ford and Chrysler are also after some of this money with GM indicating that if it goes bankrupt, it will have dire consequences in the market. And the UAW President is blaming the economy for Detroit’s’ woes, not their high-priced contracts. But let’s not stop with Detroit. Some of the nation’s largest real estate developers are lining up for their part of the TARP money too. The number of piglets sucking on the mother pig’s nipples are increasing. So, as Toyota finds itself losing money, one wonders how long it will take before the foreign owned auto makers come looking for bailout money from the Feds.

However, Paulson is now refocusing a portion of the TARP money on Consumers to increase the availability of student loans, auto loans and credit cards. The intention is to jump start consumer demand for goods and services. But even as Paulson tries to jump start the economy, today’s investors are losing faith and trust in the stock market. In addition to the huge equity losess from February of 2008 to December of 2008, investors have pulled out another $72billion from the stock market to place that money in more traditional, safe instruments, such as CDs.

The focus on consumers might be welcome news to retailers, but it’s probably too little too late.  It is predicted that there will be a wave of retailers going bankrupt in the coming months.  No surprise there.

But there are upsides to this economy too. Banks are waging rate wars to attract depositors. In addition, the price of oil continues to plummet, leading some locations in the United States to now enjoy per gallon prices below $2. This week, I filled up my Suburban at $1.85/gallon. Also, the gun industry is enjoying a huge boon, but this mostly due to the political climate, not the financial climate. Even the Journal is indicating there might be an upside to this mess.