by Nancy Osborne, COO of ERATE®
Dec 18, 2008 - It has become a real challenge tracking the sheer number of bailout programs announced on a weekly basis and precisely how much of our taxpayer dollars the government has spent so far. It seems as though one day a program is announced, the next it is modified or retracted and then another new program follows it. It is enough to make a taxpayer's head spin. At times it appears as though taxpayer confusion is a deliberate goal and in an era where the lack of transparency created many of the problems we are facing it is disturbing that the government seems primed for expediency rather than a complete vetting process based on full disclosure. It is truly a shame that when we need as much oversight as possible, of both the Fed and the Treasury, the Shadow Open Market Committee does not have a voice, as they last registered their opinion in May of 2006. Treasury Secretary Paulson has faced much criticism for failing to get out in front of the problems and for lacking the clear decisive action which is required to reassure the markets. However if you examine the source of funds which have been generated for the $8.5 trillion bailout to date, the highest percentage is actually coming from the Fed, in fact up to 65% of the money being spent does not require Congressional oversight or approval as the Fed is independent and unhindered in its operations to extend funds. The Fed can create or print new money when it lends from its own balance sheet and it has been doing so for over a year. Although this Fed activity may not be reflected directly in the federal budget, it does have an effect and certainly impacts the value of the dollar as more dollars are injected into the system our currency's value is eroded and will likely lead eventually to higher interest rates and inflation. Roughly 13% of the bailout money is coming from the Treasury Department, most notably through TARP, the Troubled Asset Relief Program. The remainder of the funding allocated, approximately 22% is coming from the Federal Deposit Insurance (FDIC) and the Federal Housing Administration (FHA), which unlike GSEs Fannie and Freddie until recently when they were taken over by the government, the FHA is explicitly backed by the full faith and credit of the U.S. government. The majority of taxpayer funds being spent are being applied in the way of loans, loan guarantees and stock or equity purchases upon which the hope of some taxpayer return down the line exists. Some funds may also go directly to assist distressed homeowners. Given the uncharted path that led us into this crisis, as well as the government's uncharted response to it, it would be impossible to estimate what the ultimate toll on our economy will be as well as the final cost to the taxpayers once the economy stops crashing all around us. It will likely be the innocent future generation of taxpayers who will be faced with the heaviest burden of all.
Nancy Osborne has had experience in the mortgage business for over 20 years and is a founder of both ERATE, where she is currently the COO and Progressive Capital Funding, where she served as President. She has held real estate licenses in several states and has received both the national Certified Mortgage Consultant and Certified Residential Mortgage Specialist designations. Ms. Osborne is also a primary contributing writer and content developer for ERATE.
"I am addicted to Bloomberg TV" says Nancy.
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