Archive for January 20th, 2009

Progress Report of US TARP

January 20, 2009

There are so many country versions of TARP now that one has to mention the country in front. (See Swiss, UK and posts on TARP).

There are 2 reports evaluating progress of US TARP.

 

Section 202 of that law requires the Office of Management and Budget (OMB) to submit semiannual reports on the costs of the Treasury’s purchases and guarantees of troubled assets. The legislation also requires the Congressional Budget Office (CBO) to prepare an assessment of each of those reports within 45 days of its issuance. That assessment needs to include a discussion of:

  • The costs of purchases and guarantees of troubled assets,
  • The information and valuation methods used to calculate those costs, and
  • The impact on the federal budget deficit and debt.

The reports were released Office of Management and Budget (OMB) (on 5 Dec 2008) and  by Congressional Budget Office (CBO)(Jan 16 2009) (within 42 days), The CBO report summarises the 2 reports.

  • At time of CBO total funds used were USD 247 billion (excluding Bank of America’s USD 20 bn). CBO estimates the present value of those investments at USD 183 billion. This implies a total subsidy or net cost of USD 64 billion. This USD 64 billion is the cost to taxpayers. This USD 183 bn could easily be lower or higher depending on the actual market and policy reponses.  Say if Citi/AIG are no more or recover much better, the value would differ. Also, if US Govt decides to copy UK and swaps preference shares with Ordinay shares, the valuation would change. THE CBO report also has a nice table (Table 1) summarising the total TARP deals.
  • When OMB report was written out of USD 350, USD 115 was used. It uses two methods to calculated PV. One gives a loss of USD 25.5 bn and other a gain of USD 12.6 bn.

It is still open to markets whether it will be TARP (relief plan) or a TRAP for taxpayers. But yes it is good to see transparency and sticking to reporting as detailed by the Act.

A primer on Monetary Policy

January 20, 2009

Christopher Ragan of McGill University has written an excellent paper which serves as a neat primer on monetray policy. This paper is written for Bank of Canada and explains the basics of monetary policy from a Canadian perspective. However, the basic principles can be applied for all economies.

Policy advice for Tim Geithner

January 20, 2009

Luigi Zingales offers his advice for Tim Geithner, the new US Treasury head from 20 Jan 2009. Zingales still believes private capital would flow in markets if Treasury gets its act right. He also says nationalisation is not the answer.

Update:

1. Krugman advocates nationalisation, restructuring and then reprivatisation

2. Buiter says temporary nationalisation

Assorted Links

January 20, 2009

1. Krugman takes on Gary Becker here and takes on John Taylor, Gene Fama, John Cochrane and Greg Mankiw here. Mankiw answers Krugman

2. BS on nationalising banks

3. CTB points it is more useful to have taxcuts than govt spending

4. Ecnobrowser on how can we limit the executive compensation

5. TTR points plain ratio analysis could have revealed  problems in US banks. For instance Citi had subprime exposure equal to 242% of tier one capital in 2007. What were the equity analysts doing? Giving it a Buy what else!! In another post he points to some good stats about Citi:

The bank’s share price is down to $3.5, its market cap of $20 bn is less than its wage bill….Losses for the year came to around $ 19 bn, taking total crisis losses to a staggering $100 bn, almost the size of ICICI Bank’s balance sheet. ….

6. Urbanomics has an excellent post  on tax cuts vs infrastructure spending.


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