Friday, September 14, 2012

Wall Street Billionaires Destroying Social Security & How Much Did AIG Pay For The Government’s Bailout? (Wouldn't You Like That Sweet Opportunity?)

I've said it before, and now Senator Sanders backs me up for everyone to see and act upon. (Again.)

Have you enjoyed the last few decades where you gave your hard-earned money to rich folks who promised that they would use it better than you to create jobs and a stable country, yet suffered no penalty when it became obvious that they had lied (and massively lined their own pockets)?

Pete Peterson leads the big-time (starving billionaire) thieves and will triumph again if no one is willing to call them for what they are.

Where is the posse now?

Don't Let Wall Street Billionaires Destroy Social Security

By Sen. Bernie Sanders

Reader Supported News

08 September 12

eptember 7 is an important date for New Hampshire. On that day, Wall Street billionaire Pete Peterson will kick-off his 2012 national campaign to cut Social Security and other vitally important programs with a "town meeting" with a town meeting at St. Anselm's College in Manchester at 5 p.m.
The American people should not be fooled by the misinformation that will be spread at these "grassroots" gatherings backed by some of the most powerful Wall Street, insurance, and corporate CEOs in the country.
The goal of these "town meetings" is to convince the people of New Hampshire and the rest of America that the only effective way to address the deficit crisis is to balance the budget on the backs of the elderly, the children the sick and the poor.
Don't believe it!
First, let us never forget how we got into our current deficit crisis.
In January of 2001, when Bill Clinton left office, this country was enjoying a very healthy $236 billion SURPLUS projected to increase in the coming years.
Under President George W. Bush and his fellow "deficit hawks," the United States went to war in Afghanistan and Iraq and "forgot" to pay for the wars which will end up adding some $3 trillion to our national debt.
Under George W. Bush and his fellow "deficit hawks," the wealthiest people in this country were given huge tax breaks which cost $1 trillion over a 10-year period. There was no offset for those tax breaks. They were simply added to the deficit.
Under George W. Bush and his fellow "deficit hawks," an overly-expensive Medicare prescription drug program written by the insurance and drug companies was signed into law. This program, which explicitly prevented the government from negotiating lower drug prices with the pharmaceutical industry, was not paid for and will end up adding some $400 billion to our national debt over a 10-year period.
Now, having run up huge deficits, our born-again "deficit hawks," on behalf of their billionaire allies, want to cut Social Security to save money.
What's wrong with this picture? First, despite Wall Street and right-wing misleading rhetoric, Social Security, which is funded by the payroll tax, has not contributed one nickel to the deficit. Second, the Social Security Trust Fund today, according to the Social Security Administration, has a $2.7 trillion surplus and can pay 100 percent of all benefits owed to every eligible American for the next 21 years.
Why should we vigorously defend Social Security, prevent any cuts and, in fact, make sure Social Security is solvent for the next 75 years? The answer is obvious.
In these highly volatile economic times, when millions of Americans lost their life savings in the 2008 Wall Street crash, Social Security, through good economic times and bad, has paid out every penny owed to every eligible beneficiary. In other words, it is a guaranteed benefit and that promise has always been kept.
In the 77 years since President Franklin Roosevelt signed Social Security into law on August 14, 1935, the retirement and insurance program has been one of the nation's most successful anti-poverty programs. Before Social Security existed, about half of America's senior citizens lived in poverty. Today, less than 10 percent live in poverty. Further, Social Security provides much-needed assistance to people with disabilities as well as widows, widowers and orphans.
Let's be clear. The deficit and national debt are serious issues, but we must not balance the budget on the backs of the elderly, the children, the sick and the poor. This would not only be immoral, it would be bad economic policy.
While our billionaire friends may not like them, there are much fairer ways to reduce the deficit. At a time when the wealthiest people in this country are doing phenomenally well and their effective tax rate is the lowest in decades, the top 1 percent must begin paying their fair share of taxes.
At a time when large corporations are enjoying record-breaking profits, we have got to eliminate the huge corporate loopholes which result in a massive loss of federal revenue. At a time when we have tripled military spending since 1997, we must take a hard look at a bloated and wasteful Defense Department.
To keep Social Security's finances sound in the future I have introduced legislation - identical to a proposal that President Obama advocated in 2008 - to apply the payroll tax on incomes above $250,000 a year.
Under current law, only earnings up to $110,100 are taxed. The Center for Economic Policy and Research has estimated that applying the Social Security payroll tax on income above $250,000 would only impact the wealthiest 1.4 percent of wage earners.

While we often take Social Security for granted, we must not forget that Social Security today is providing dignity and security to tens of millions of Americans at very modest administrative cost.
It is a program that is working and working well.
Now is the time to defend Social Security against billionaires, right-wing Republicans, and some Democrats who want to cut this program. Let's send them that message in New Hampshire on September 7.

But you got to have frieeeeeeeeends . . .

And these folks have got some verrrry gooood ones.

12 Sep 2012

How Much Did AIG Pay For The Government’s Bailout?

I guess I regret asking yesterday “how much did the government make on AIG?” because you can quibble with that question both on arithmetic grounds – should you count other programs as part of AIG’s bailout, rather than just the bailout-y programs I counted? – and on philosophical grounds. The philosophical objection is something like “the government + central banks sort of run a financial system as a squishy whole, and if you cut out one part of it and measure it you are doing something pretty silly because the rest of it is slowly oozing out around you and suffocating your accounting methods.” Something like that.1

But here is perhaps a fairer question: “how much did AIG pay for the capital that the Fed and Treasury invested in it?” This is a better question because AIG is not as polymorphously oozing as a Financial System; unlike Treasury + Fed it has to report GAAP financials. Also because asking about the cost of various transactions makes it feel better to treat those transactions in isolation from other transactions, and to compare them to transactions that other people did.

Best of all, though, it’s the same question: AIG’s “cost of capital” for the government programs is just the internal rate of return on the cash flows on those programs.2 By my math yesterday – which ties out broadly enough with the government’s math that I’m going to declare it “correct” – the answer is about 5.7% per annum, with the Fed programs costing 7.9% and the Treasury’s programs costing 2.8%.3
So how does that stack up? I dunno, but here are some thoughts. First, the obvious comparison: big-bank TARP was a lot more expensive for the banks. This much more expensive:4

So AIG’s cost-of-bailout was much lower than any of the banks’ cost, despite the fact that its bailout was the biggest and it was arguably the closest to death’s door. (Maybe except Citi.) This is a little bit of an unfair comparison because it counts only the most expensive bit of the big-bank rescues and measures it against all of the AIG rescue; arguably Goldman’s bailout-y government funding included some cheaper programs (of the secured-lending, TALF and discount-window varieties) that are somewhat comparable to the secured loans that I’m rolling into the AIG bailout. (Also arguably Goldman’s bailout-y government funding included the AIG bailout.)

But still, if you look at the most comparable bit of the AIG bailout, the comparison is even starker: if you look only at Treasury programs, which consisted of preferred-plus-warrant investments that devolved into common equity investments (and some preferred interests in SPVs holding equity in some specific businesses), then those are comparable to TARP – and they cost AIG under 3% per year.
The Fed, which provided only secured loans, drove a harder bargain and got a 7.9% return, which is not bad for secured lending (unless it’s, y’know, lending in September 2008 secured by AIG structured credit assets, but anyway).
That in itself is weird – you’d normally charge more for the riskier investment, not less. (Nominally Treasury charged a lot, but one of the core features of the AIG bailout was charging high stated interest/dividend rates, paying the interest/dividends in kind rather than in cash, and then ultimately wiping out the whole instrument before the cash interest was ever paid.)

You could I suppose look at other comparisons. One that I sort of like is that the average cost of four-year debt for a BBB-rated US industrial company, as of September 22, 2008, according to Bloomberg’s FMCI function, happened to be 5.7067% – a basis point or two away from the actual cost for AIG’s actual four-year bailout signed that day. Was AIG as good as a BBB-company? Better? Worse? (Could a BBB-company actually have funded at that rate that day?)

Meh. I don’t have any dramatic conclusions to draw from this. I put it up mostly to propose a corrective to the boring, zero-discount-rate “the government made $X billion on this bailout so That’s Good” narrative.

One basic intuition is that in general huge risky investments should cost more (to the investee) than smaller safer investments, so it’s odd that AIG’s ex post cost of capital was so low – lower, for instance, than the stated 12% rate on that first Fed loan.
But of course it’s an ex-post cost of capital: riskier investments cost more because they’re more likely to default, as AIG did, repeatedly. (Sorry, “restructure.”) Even after repeated restructurings migrated the government down AIG’s capital structure, it still got back a bit more than par, so you can’t complain too much about its so-so returns. But there’s no reason to ignore them, either.

1. Or what? Like, are low interest rates a cost of bailouts? (Are they even good for banks? For AIG?) If so, whom do they cost? “The government”? “The Fed”? “Taxpayers”? “Savers”? Or, unrelated, do you allocate a portion of Volcker Rule-making costs to AIG? Etc. Seems uknowable-ish.
2. Or, like, the negative of it, whatever.
3. That’s assuming what I assumed yesterday, and also assuming that the Treasury dumps its remaining $8-ish billion of AIG stock today at today’s price. Since it’s not doing that, the IRR will vary a bit depending on when it sells that stock and how much it gets for it.
4. Math here, all data stolen directly from ProPublica’s great “find a bailout” database. A quibble here is that I assume warrants are cut off when the government is repaid, even if the government is repaid by warrant auction; this is relevant for the government’s IRR but arguably not for the bank’s cost of capital, since the warrants remain outstanding and so if the stock keeps going up so does their cost. But of course they could’ve bought in the auction so it’s not that big a deal. Numbers, if you’re interested: 

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