It's Not Funded By Taxpayers

http://www.optimist123.com/optimist/ ^ | 09/29/08 | Skeptical Optimist

[MHGinTN]

It's not funded by taxpayers The Skeptical Optimist

[Now that Capitol Hill has agreed on a package, I hope we can all take a breath. My last article was titled "It's not a bailout; it's the dollar's credibility"; this is a follow-up.] Seems to me the main sticking point that almost prevented an agreement on the falsely-named "bailout" package was the false impression that we taxpayers will have to reach into our pockets and somehow come up with seven hundred billion dollars on short notice. And I think that false impression resulted largely from the answer Jim Bunning got when he pressed Secretary Paulson for an answer to his question, "Where will the money come from?" Paulson, I think, answered too quickly; "The taxpayers" was his answer.
I wish he had said "bond buyers" instead of "taxpayers," because that's how it will really be funded. But he didn't. He said "taxpayers" -- and, unsurprisingly, that scared a lot of taxpayers.
I checked the wording of the not-a-bailout plan, and it clearly refers to Title 31 of the US Code as one of the main levers the Treasury will use to execute the plan: it will issue treasury bonds, bills, or notes as necessary.
When the Treasury sells T-bonds to willing buyers in the bond market, the transaction does not involve unwilling taxpayers. (Does Jim Bunning know that? How about Ron Paul? I'm not so sure.) In any case, I decided to build an eight-picture series of the "asset swap" to show why taxpayers need not be involved at any point in the swap.
Diagram 1:

…

Diagram 8:

…

Conclusion:
One of the most unfortunate aspects of the last seven days' dialogue, in my judgment, was the mistaken impression that "taxpayers" would somehow have to come up with "seven hundred billion dollars" on very short notice -- and hand it over to Wall Street CEOs. No wonder everybody was angry; clueless talking heads were on every channel, egging us on. I was walking past a TV from which the dangerous renegade Lou Dobbs was sarcastically perpetuating his version of that false characterization, but I didn't get to hear more than a few sentences of Dobbs's uninformed tirade. Reason: his voice always triggers the involuntary reflex of getting myself away from that TV quickly as possible.

Obviously, there are all sorts of details that need to be worked out regarding the cleansing and auction processes -- and there are all sorts of good ideas being floated for those, too. The credit markets have yet to speak today (Monday), but I'm glad Capitol Hill came through with a plan that has only a few ugly ornaments hanging on the basic Paulson/Bernanke package. This should be good news to the markets.

It should also be good news to the taxpayers, to Jim Bunning, and to Ron Paul, don't you think? (I doubt it will do Lou Dobbs any good; he's hopelessly locked into his schtick -- and in any case, I don't care.)

[MHGinTN]

Information on the scope of this current financial challenge. Try clicking on the linked site, to read through the very informative charts. Not saying I agree or disagree, just that his information is very helpful for perspective on the scam we're being sold.

[MHGinTN]

Kerping

[raybbr]

I wish he had said "bond buyers" instead of "taxpayers," because that's how it will really be funded. But he didn't. He said "taxpayers" -- and, unsurprisingly, that scared a lot of taxpayers. I checked the wording of the not-a-bailout plan, and it clearly refers to Title 31 of the US Code as one of the main levers the Treasury will use to execute the plan: it will issue treasury bonds, bills, or notes as necessary.

Only if someone's willing to buy them.

Uh, where does the interest on the bonds come from? Where does any money the govt. has come from?

[Thane_Banquo]

1) Taxpayers are required to repay principal and interest on Treasury borrowings, so we are in effect on the hook. The present value of the borrowings is $700 bln, so that is the present value of the tax revenues necessary to fund the plan. Again, if we taxpayers aren’t actually having to pay for anything, why not just vote every America $1 million from the Treasury, to be paid out by borrowings. Hey, we’re not on the hook for it, so we might as well vote ourselves as much mone as possible, right?

2) Saying taxpayers aren’t paying for the bailout is a bit like saying you aren’t paying for your house because you have a mortgage.

3) Money is fungible. $700 biln for one thing, in borrowings, must mean that there is $700 bln less for something else. There is no such thing as a free lunch.

4) If the government were merely to print $700 bln in new currency, the purchasing power of existing dollars would go down so that, in purchasing power terms, we would still be on the hook for $700 bln.

5) The crowding-out effect means that $700 bln allocated to the Treasury is $700 bln not allocationed to private investment and consumption, which boost GDP and create jobs.

[TADSLOS]

Uh, where does the interest on the bonds come from? Where does any money the govt. has come from?

Didn't you know? They print it in the basement of the Treasury. Taxpayer money goes in the Congressional lockbox.

[roaddog727]

“Uh, where does the interest on the bonds come from? Where does any money the govt. has come from?”

Bingo!

You win the prise!

The $ comes from......... Drum Roll.........

US TAX PAYERS!

SO, this is just another line of BS.

[ltc8k6]

You know where that very important $700-billion figure came from?

Here’s a quote from that Forbes story:

“It’s not based on any particular data point,” a Treasury spokeswoman told Forbes.com Tuesday. “We just wanted to choose a really large number.”

They made it up to be sufficiently ginormous to frighten everyone into rapid action.

And it worked.

http://littlegreenfootballs.com/article/31397_$700_Billion-_Picked_Out_of_Thin_Air

[KarlInOhio]

2) Saying taxpayers aren’t paying for the bailout is a bit like saying you aren’t paying for your house because you have a mortgage.

Isn't that at the core of the problem - People with mortgages not paying for their houses?

[NavVet]

What a crock. It is funny how that when we talk about putting social security money in the market it is described as rolling the dice and unacceptable risk etc. Now we are to believe that selling these worthless mortgage securities at a later date is money in the bank. Nothing to worry about. If it is such a sure thing, why can’t the banks involved and Freddie / Fannie sell them on the open market???

[bigbob]

Thanks. Way too much BS and knee-jerky partisan opinion floating around - on both sides.

[joe fonebone]

actually, this clears up alot......now if we can keep the libs out of the way with amendments...

[nmh]

Ah hem.

I won’t be bamboozled.

The ONLY money the GOVERNMENT has is the MONEY it has from YOU the TAXPAYER.

Seriously, get real.

[MHGinTN]

Payment of interest and principle is paid through the tax collection the Fed operates. That includes the monies taken in to the Fed through fees, leases, and taxes upon the extraction of natural resources. Thus my admonition that we can work our way out of this astonishing debt morass by opening up the utilization of our resources and allow nuclear power plants and refineries, and the creative powewr of American technologies.

No one ever does the proper math to show the truth of whom actually pays these Fed debts. Try factoring the taxpayer percentages by amounts of taxes actually sent to the Fed by categories of tax payers. Since a very small number of wealthy folks pay the lion's share per capita of the taxes, whose money collected by the fed is actually carrying the liuons share of the Fed debt? HINT, it isn't the typical middle calss worker, so assigning an equal amount to every tax payer is 'creative use of statistic'.

[MHGinTN]

Appreciate the link!

[Iron Munro]

[Mad Dawgg]

"The ONLY money the GOVERNMENT has is the MONEY it has from YOU the TAXPAYER."

Almost correct, there area few (And I mean very few) other sources of income the government gets but its not even close to income taxes in terms of volume.

[WorkerbeeCitizen]

I think the issue being lost in all of this is the fact government has no authorization nor the business acumen to be in this business - it unconstitutional.

Also, I am concerned that the government will have any access to that much private property.

I’m afraid at this point, the taxpayer is probably at the bottom of the priority list.

[roaddog727]

I’m not your typical middle class worker.......

My pocket is cringing already.....

[Belasarius]

The bonds aren’t backed by anything. We wouldn’t have authorized them if we didn’t need to. So,we are in effect printing money to solve this problem.

Try waving your magic wand and bringing into being $700 billion dollars in gold or other fungible assets. This whole system works only because we are conditioned to it. A few more disasters like this and people’s conditioning will start to wear thin.

[Phlyer]

If it is such a sure thing, why can’t the banks involved and Freddie / Fannie sell them on the open market???

Exactly. The assumption in this analysis is that the 'bad' mortgage securities are actually worth as much or more than the US Govt will pay for them. So that, once the calm, rational, and expert US Govt gets done sorting them out, we'll find that higher actual worth, and the banks will line up to buy that debt back, providing the funds to retire the bonds.

If that were the case, the bankers would be doing that analysis themselves, and not sell those undervalued debts to the US Govt in the first place. The shortfall between what the banks are willing to pay for those debts and what the US Govt will have to pay for those debts in order to get liquidity back into the system is a price that will be paid by the US taxpayer.

It is certainly possible that the Wall Street financiers are so panicked that they have no idea what all that 'bad' debt is actually worth, and so a little cooling-off period where the US Govt holds the debt will allow a better assessment of the actual value.

Possible . . . but not likely.