The Fed’s current round of Treasury bond and mortgage backed security (MBS) purchases is pushing the monetary base to new highs. This is because the Fed is mostly making these purchases by creating new money – at a rate of $45 billion/month for Treasuries and a rate of $40 billion/month for MBS.
According to former Federal Reserve official Andrew Huszar, the official in charge of the first round of quantitative easing, the policy has been “the greatest backdoor Wall Street bailout of all time.”
We’re currently in the third round of QE, and when this ride will end is anyone’s guess.
Chris Edwards at Cato lists a few examples of wasteful government spending (and corporate welfare):
- The FHA is asking for a $1.7 billion taxpayer bailout.
- Environmentalists are concerned that grasslands and wetlands are being turned into farmland at a rapid pace across the northern prairies. This story mentions the effect of ethanol subsidies, but another cause of the change is the $30 billion of farm subsidies pumped out each year.
The government’s been selling GM stock at a rapid pace, and it’s expected to sell the rest of its holdings by March of next year. From the Detroit News:
The pace of the sell-off has picked up: The government sold an average of 19 million shares in the early part of the year, but since May has sold more than 25 million a month — plus a one-time special sale of 30 million in June, worth more than $1 billion, to coincide with GM’s return to the S&P 500.
The federal government sold a sizable quantity of GM stock last month – $811 million worth. Nevertheless, it still owns 186 million shares. This is a reminder that it can take the government a long time to unwind from a bailout, and the interventions can be seen even years after the initial action. From the Free Beacon:
More than 20 percent of GM is owned by government entities as a result of the Canadian and American bailouts. The United States has a 13 percent ownership stake. Canada’s federal government, combined with the Ottawa and Ontario provinces’ shares, owns 8 percent of company stock.
Who would have guessed? Investors are suing the government over “2012 changes of the bailout terms set for government-owned mortgage firms Fannie Mae and Freddie Mac.” As a refresher, Fannie and Freddie are government sponsored enterprises that buy and guarantee mortgages, which they then offer as bonds. From the Free Beacon:
The lawsuit, filed in U.S. District Court in Washington, alleges that the Treasury and the regulator for Fannie Mae and Freddie Mac violated a 2008 law that put the two mortgage companies into conservatorship as they faced insolvency at the height of the U.S. financial crisis.
The USDA is going to spend $38 million to prop up declining sugar prices. If prices continue to fall, the USDA will pay hundreds of millions more through its loan guarantee program. Mike Hughlett at the Star Tribune reports:
The federal government will intervene in the sugar market for the first time in more than a decade, spending up to $38 million in an effort to forestall a later bailout of sugar producers in Minnesota and elsewhere that could cost more than $300 million.
In a cronyism twist, new regulations from 2010′s Dodd-Frank legislation will set aside certain businesses for special government oversight because they are too big to fail. (The official term is Systemically Important Financial Institution). This arrangement may devolve into a special benefit for the designated businesses because it will tell the public that the corporation has the government’s backing. From the American Enterprise Institute blog:
Now think about that when you hear the great hew and cry of the folks who purport to be worried that the big banks are too-big-to-fail (TBTF). They denounce the funding advantages these banks get because of the markets’ belief that the government will not allow them to fail… Who could resist buying insurance from a firm the government will not allow to fail?
Mark Modica from the National Legal and Policy Center has written the following article, regarding how a watchdog for the government’s bailout, the Special Inspector General for the Troubled Asset Relief Program (SIGTARP), has recently directed a devastating critique against the US Treasury’s methods of channeling billions of taxpayer dollars into bailed-out companies.
The Detroit News quotes the SIGTARP report as stating, ‘While taxpayers struggle to overcome the recent financial crisis and look to the U.S. government to put a lid on compensation for executives of firms whose missteps nearly crippled the U.S. financial system, the U.S. Department of the Treasury continues to allow excessive executive pay.’ The report goes on to mention that executives at bailed-out firms, “…continue to rake in Treasury-approved multimillion-dollar pay packages that often exceed guidelines.
Matt Mitchell at the Mercatus Center writes an article about the bailout of GM and the cost to taxpayers:
Marketplace recently did a segment on the federal government’s announcement that it was getting out of the car business and would be selling off its stake in GM over the next two years. Marketplace reporter Nancy Marshall-Genzer first turned to Cato’s Dan Ikenson who noted that taxpayers would likely “need to assume a loss of $15 to $20 billion.”