Some Economic Posts
Matt Taibbi and Rick Wolff have written some interesting things that you might like reading.
First, Wolff on the “recovery”:
The second set of numbers was collected and published by the US Federal Reserve; that set concerns “capacity utilization.” Roughly, these numbers measure the proportion of the nation’s capacity to produce that is actually being used for production. In July 2009, the US capacity utilization proportion in all manufacturing was 65.4, or roughly two thirds. Over one third of the tools, machines, equipment, factory and office space, etc. in manufacturing was idle. By comparison, the average rate of manufacturing capacity utilization from 1972 through 2009 was 79.6. The crisis is thus increasing our economic system’s huge waste — failure to make use — of a very significant portion of our nation’s productive resources. Idle capacity usually means deteriorating capacity. And this after a year of Bush and Obama “economic stimulus packages.”
Consider the meaning of this waste. Side by side with today’s 15 million unemployed people (not to speak of the underemployed), we have one third of our industrial capacity unemployed as well. Meanwhile massive social needs go unmet (rebuilding center cities, providing daycare, healthcare, and eldercare to millions, repairing decades of damage to the environment, and so on). The way this economic system works, we are supposed to wait until private enterprises see profits from rehiring the unemployed and utilizing the available capacity. Until then, we are supposed to watch and accept this system’s inability to combine unemployed people with unemployed resources to meet obvious social needs.
So much for the efficiency of the market system. The idea of unemployed industrial capacity calls to my mind an article I read a while back about how many of Japan’s robotics facilities are closed down — even machines are affected by the crisis! Of course, being machines, they do not feel themselves rust, while we fleshies are apt to double over from hunger pangs and the sense of powerlessness and shame that comes with losing a home.
Taibbi’s post is on the announcement that the TARP has actually turned a profit. It turns out that in order to make that statement you have to ignore the losses it has sustained and the outstanding loans it retains:
It was inevitable that the same people who pushed through the multi-trillion-dollar bailout of Wall Street would come out later on and tell us what it a great idea theirs turned out to be, in retrospect and under the light of evidentiary examination. And we’re getting that now, with a pair of reports, the above one in the New York Times and another in the Financial Times, telling us the bailout is working because the government has made some money on TARP. They came to this conclusion by quoting Fed officials, who apparently calculated how much interest the Fed earned on TARP investments above what it would have earned on T-bills. The amount so far, according to these worthy gentlemen: $14 billion.
This is sort of like calculating the returns on a mutual fund by only counting the stocks in the fund that have gone up. Forgetting for a moment that TARP is only slightly relevant in the entire bailout scheme — more on that in a moment — the TARP calculations are a joke, apparently leaving out huge future losses from AIG and Citigroup and others in the red. Since only a small portion of the debt has been put down by the best borrowers, and since the borrowers in the worst shape haven’t retired their obligations yet, it’s crazy to make any conclusions about TARP, pure sophistry. Moreover, a think tank set up to analyze TARP, Ethisphere, calculated in June that TARP was still $148 billion down overall, a debt of over $1200 per American. To start talking about what a success TARP is now is beyond meaningless.
The other reason for that is that it’s only a tiny sliver of the whole bailout picture. The real burden carried by the government and the Fed comes from the various anonymous bailout facilities — the TALF, the PPIP, the Maiden Lanes, and so on. The losses from the Fed’s purchase of distressed/crap Bear Stearns assets (Maiden Lane I) and AIG assets (MaidenLanes II and III) alone were as recently as late July calculated in the $8.6 billion range, and even that number is very conservative. Then there’s the trillion or so dollars that the Fed used on buying up mortgage-backed securities and Treasuries; we don’t know what their market value is now. And there are untold trillions more the Fed has loaned out in the last 18 months and which we are not likely to find out much about, unless the recent court ruling green-lighting Bloomberg’s FOIA request for those records actually goes through.
Tags: crisis, economics, Matt Taibbi, Rick Wolff, TARP
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By rogerr, 1 September, 2009 @ 11:20 am
Read, also, Dean Baker’s piece in the Guardian. http://www.guardian.co.uk/commentisfree/cifamerica/2009/aug/31/banking-profits-us-economy He presses on a point I’ve been making over and over again myself, which is that the Fed is playing a game by loaning banks money at such a low rate of interest that they can double the money by loaning it back to the U.S.- buying treasuries - at twice the interest. It is simply welfare for the wealthiest.
By JCD, 1 September, 2009 @ 1:29 pm
Thanks for the tip roger; that’s a good piece too.
In my next life maybe I will be a moneylender.
By Bruce Webb, 1 September, 2009 @ 4:17 pm
Well I find it interesting that the Ethisphere TARP Index referenced has not been updated since Jun 19th even while it was updated somewhat regularly prior to that. It is a funny kind of ‘Index’ that takes a snapshot in time and leaves it at that.
I don’t believe in taking the Rebecca of Sunnybrook Farms approach of thinking everything is shiny and bright, but then I don’t think we should be Henny Penny either. Really I don’t see what June 19th data tells us given the change in stock values in the two and a half months since. And yes I know the Dow is volatile, but it was on June 19th as well, you calculate with the data you have.
What is the value of the Ethisphere TARP Index today? You don’t know because they are not reporting it. Which is a little curious, the whole point of an index is to track change over time.
By JCD, 2 September, 2009 @ 10:03 am
The stop in coverage is probably tied to the media’s broader turning away of attention from the TARP. The news-cycle seems to act as a great pressure release valve: there is a moment, that lasts for as long as necessary, of violent outpouring of sentiment, which is channeled, and then something else gradually replaces it.
I am sure that info on the TARP’s market value is available, however. Perhaps not.
By rogerr, 2 September, 2009 @ 11:04 pm
I don’t think the value here is so directly connected to the stock market - because the stock market has not really been out of range of what it was in June. You should refer to the last reasonable assessment - and you should certainly ask, if your source at the Fed pushes numbers on you, well, this is just part of the portfolio. What does that fascinating 160 billion dollar investment in AIG look like? And how about the toxic auction - seemingly, since June in fact, there seems to be little action for it at all. Why do you think that is? And among those toxic assets, are there, perhaps, loans on commercial properties?
So one would think a reporter would ask.