Opinion

Felix Salmon

Counterparties: SIGTARP vs. Treasury

April 25, 2012

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Two government agencies. Two completely different narratives of the bailouts.

Roughly a week after the Treasury Department extolled the virtues of America’s crisis-era bailout measures, a government watchdog has a very different story to tell. SIGTARP, the office created to oversee the Troubled Asset Relief Program and headed by Christy Romero, has released its latest quarterly report to Congress [PDF].

If you’re struggling to understand the financial crisis and its aftermath, don’t read them back-to-back. One is a story about an against-all-odds victory; the other is about the one that got away.

Last week Treasury estimated that TARP investments, excluding its housing programs, would yield “an overall positive return for taxpayers.” SIGTARP, clearly pushing back against Treasury, says: “It is a widely held misconception that TARP will make a profit. The most recent cost estimate for TARP is a loss of $60 billion.”

In statements to Politico’s Ben White and HuffPost’s Mark Gongloff, Treasury sticks by its story that the bailouts may turn a profit, telling Gongloff “most of the remaining projected cost [of TARP] ($46 billion) is related to foreclosure prevention aid, which was not intended to be recovered.”

It’s worth looking, then, at how foreclosure prevention money is actually being spent. In January, Treasury announced plans to significantly expand its widely maligned HAMP program for struggling homeowners.

SIGTARP’s recommendations for this HAMP expansion are pretty simple – they’re things like setting clear goals and making borrowers prove that they’re actually renting second homes rather than vacationing in them. But Romero complains that Treasury has largely refused to implement these recommendations. “Taxpayers and lawmakers, the office writes, “have an absolute right to know what the Government’s expectations and goals are for using billions of TARP dollars they’ll never get back.”

Regardless of which bailout narrative you believe, we can do better than spending billions without specific goals or accountability. That sounds a bit too much like the first round of bailouts.

And on to today’s links:

EU Mess
The UK is back in recession – Guardian

Billionaire Whimsy
Buffett pushed for higher taxes on the rich; Berkshire lobbied for cuts in private jet fees – WSJ

New Normal
Debt collectors are now “embedded” as employees in emergency rooms – NYT

Apple
A breakdown of Apple’s latest amazing quarter – Asymco

Walmexgate
Wal-Mart lobbied aggressively to water down anti-bribery law – WashPost
Wal-Mart appoints global anti-bribery watchdog – Reuters

Reuters Opinion
The triumph of the social animal – Chrystia Freeland
When credit cards go social – Felix
When Europe goes to extremes – John Lloyd
Wal-Mart’s bribery is sadly unsurprising – Robert Boxwell
The IMF’s Euro conditions are not what they seem – Hugo Dixon

Unintended Consequences
The basic flaw in our massive disability program that discourages people from working – NYT

Alpha
“Hedge Funds Perform Better And Cost Less Than Previously Thought, Say Hedge Funds” – Dealbreaker

Sad But Probably True
Netflix is both beloved and likely doomed – Felix
Netflix’s stream of bad news – NYT

Reversals
Credit Suisse’s net profit falls 96% – and that’s a “sharp turnaround” – WSJ

Fail
How the SEC blew the cover of a Wall Street whistleblower – WSJ

Try Again
The new face of private equity, obligatory hard hats included – NYT

Yikes
“The best fight I’ve ever seen”: Brawl breaks out at elite NYC club – NYT

Regulations
Esther Dyson: The JOBS Act is just “magical thinking” – Project Syndicate

Tracked Changes
Parsing the Fed: How much the statement changes from March to April – WSJ

 

Comments
13 comments so far | RSS Comments RSS

Who says – ‘You can’t teach an old dog new tricks’?

St. Warren (Buffet) of Omaha has seen the light, asking now that the rich pay more in tax. Some time back he became estranged from his adopted grandaughter after she had the temerity to appear in a film titled “The One Percent”. Wonder if he’s forgiven her – or she him?

Can check it out here – http://www.huffingtonpost.com/eat-the-pr ess/2006/09/07/warren-buffett-has-no-gra _e_28880.html

OBTW: Nicole and her heirs and heiresses pals are an even better advertisement for a 99% estate tax than Paris Hilton.

Posted by MrRFox | Report as abusive
 

I don’t believe that the Treasury argued that TARP over all would make a profit. In fact, most of that 60bn loss is deliberate – it is the 44bn USD cash gift to homeowners. The rest of that loss is the car companies and the Treasury’s argument there is that having tens of thousands of people out on the street would have cost the government more.

UK GDP figures are widely expected to be revised upwards and the Guardian is heavily incentivised to push the two lies that a) there is any serious form of “austerity” in the UK and b) it is responsible for the UK’s woes.

Buffet is a fan of taxes for other rich people, not on the way he makes money.

Posted by Danny_Black | Report as abusive
 

@MrRFox, do you still persist in the foolish belief that a 99% tax will collect money?

One way or another, such a tax would be dodged. People will go to great lengths to avoid confiscation of their assets.

Didn’t we have a 70% tax bracket under Jimmy Carter or something ridiculous like that? Yet the Reagan tax reform was in part driven by public outrage that so many of the wealthy were paying **NOTHING**.

Please read up on the Laffer curve before you suggest ideas that superficially sound nice but are ultimately destructive. We have enough of those floated by politicians already!

Posted by TFF | Report as abusive
 

TFF – we had a 90%+ estate tax rate for decades in the middle of the last century.

Posted by MrRFox | Report as abusive
 

MrRFox, and the amount of money raised by that tax was how much exactly?

Posted by Danny_Black | Report as abusive
 

Exactly, MrRFox. How did that work out?

Posted by TFF | Report as abusive
 

@TFF/Danny_Black: which Laffer curve is that? The one based on historical US tax data that shows a U-shaped curve bottoming revenue at a 32% tax rate. The actual one that is inverse to the theoretical one ?

http://www.angrybearblog.com/2011/10/laf fer-curve-and-kimel-curve.html

Contra, see also http://www.nber.org/chapters/c12638.pdf for some math and modeling that shows the ‘proper’ hump-shaped Laffer curve.

Posted by SteveHamlin | Report as abusive
 

@The-Pair-Who-Pity-the-Poor-Plutocrats –

Estate tax in the US has never been the revenue generator that it could be. At all times exemptions and graduated rates have produced outcomes less than what would be expected in a rigorous tax regime. For example, in the 30′s the top rate was like 70%+, but only applied on estates then valued at over $50Mil – those are 1930′s dollars.

We do know that estates are currently running at an annual gross asset value approaching $250Bil per year, and climbing. That’s the pot of wealth held by the dead that should be intercepted rather than allowing any substantial part of it to become the unearned wealth of donees.

The intergenerational transfer of wealth within family lines has been a primal ritual of human life as far back as history goes. Interrupting that will doubtless be resisted from many quarters – yours, for example. So what? We need the money – now! – and we need to reverse the trend of an hereditary aristocracy developing in the country – whether you two like it or not.

Posted by MrRFox | Report as abusive
 

@MrRFox, what makes you think I “pity the poor plutocrats”? I simply think you are an idiot with limited reading comprehension. Put you in charge and the plutocrats will be safe!

You’ve repeatedly proposed easing the exemption (changing from $1M to an exemption of $1M PER DIRECT DESCENDENT) while pretending that you will somehow make up for the difference by confiscating the rest.

Simple fact — billionaires are smarter than you are. They realize that they have better options than to pay a confiscatory tax. Maybe they offshore their money somehow to remove it from their estate? Maybe they give it all to charity? But even if they blindly walked into your 100% tax rate, your expanded exemptions would mean that your collections would end up much less than you anticipate.

So what now? Will you continue to ignore my objections and pretend that I “pity the plutocrats”? Or will you actually ADDRESS my criticisms? Will you suggest ways that the existing loopholes might be closed? Will you tell me why EVERY DIRECT DESCENDENT needs to inherit $1M tax free?

I’ve spoken out in favor of a system with NO loopholes, no exemptions, and a high enough tax rate to actually collect some real money. What’s wrong? Is that too tough for you?

Posted by TFF | Report as abusive
 

@SteveHamlin, that’s an interesting analysis!

Excerpting:
“Now, it turns out that the optimal tax rate for growth is easy to calculate. The data cooperates very nicely. There is a relationship, an easy to estimate curve which I’ve modestly called the “Kimel curve.” And the high point in the Kimel curve is somewhere around 65%.”

Works for me… You’ll collect MUCH more estate tax at 50% or 65% than you will at 99% or 100%. And you’ve got a better chance of getting it passed, too!

If MrRFox weren’t a complete idiot, he’d get behind a proposal like that.

Posted by TFF | Report as abusive
 

Four possible responses to a 100% inheritance tax (not meant to be a comprehensive list of all possibilities):

(1) Give the permitted amount to your heirs and patriotically hand over the remainder to the US Government.

(2) Set up a charitable trust. Appoint your heirs as trustees for the fund and pay them a 2% “asset management fee” plus expenses. (On a $100M estate that would come to $2M annually.)

(3) Buy a life insurance policy that names your heirs as owners/beneficiaries. (Pay for the policy through a pet corporation to dodge direct ownership of the policy.)

…and finally…
(4) Buy citizenship in some foreign country without an estate tax. Renounce your US citizenship. Problem solved.

You can definitely raise more money by restricting our inheritance laws and raising the tax rates, however if you go too far in that direction (a 100% tax rate is certainly too far) then the wealthiest will simply take advantage of #4. You end up taxing the MODERATELY wealthy, who don’t have enough to be worth inventing a tax dodge, while the TRUE PLUTOCRATS end up paying nothing.

If MrRFox comes up with a plausible way to address that final tax dodge, then I’ll definitely listen. Instead he spouts emotional rhetoric and assumes that anybody who believes he hasn’t thought this through carefully must be “soft on plutocrats”.

The true plutocrats have greater loyalty to their wealth than to any country.

Posted by TFF | Report as abusive
 

I do hope you all appreciate what a struggle it is for “a complete idiot” like myself to keep-up with you intellectual Titans in debate – but one must soldier-on as best one can.

TFF, believe it or not, has one good point here – it’s going to possibly be impossible to prevent the plutocrats and their SPAWN from liquidating the old guard’s assets, moving the cash out of the country and themselves along with it; think – Mark Rich. That’s not optimal – the Feds need the money – but it is OK.

Raising revenue it only part of the objective. The more important part is preventing the emergence of an hereditary aristocracy in the US. Even if they manage to flee with their cash, at least they are gone – and the malignant influence they have on American political and social life will be gone too. Sometimes you have to settle for half-a-loaf, said the “complete idiot”.

Posted by MrRFox | Report as abusive
 

MrRFox, if you were a little less full of yourself you would be easier to talk to. Reasonable people would not interpret “100% tax rates will result in a variety of evasion techniques rather than 100% tax collection” as “plutocrats do not deserve to be taxed”. They may both be reasons to object to your suggestion, but they are by no means equivalent.

I agree that your proposal would cause most/all of the big money to flee the country. If that was your intention, then why didn’t you say so from the start instead of repeatedly talking about the need for revenue that your proposal wouldn’t generate?

Here’s a deal for you — I’ll say what I mean (thus you can trust that I don’t have a soft spot in my heart for plutocrats). You say what you mean (and don’t change horses midstream). Will make for a much more civilized conversation, ESPECIALLY if you can put aside the name calling.

Posted by TFF | Report as abusive
 

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