For Those Who Still Thought the Stimulus Bill Was About Infrastructure
I demonstrated a while back from the CBO report that less than 7% of the 2009-2010 spending was infrastructure in the stimulus bill. In fact, this percentage barely increases past 2010. Below is a piece of a Washington Post graphic (whole chart here). I have colored orange the areas that include infrastructure.
I have generously included all of the highway, transportation, interior, energy, water, Corps of Engineers, school renovation and parks spending, though my bet is that a bunch of that never turns into steel and concrete. I have also included some of the rural and urban development money. I have excluded facilities that are by bureaucrats for bureaucrats, such as improvements in federal office buildings. I have tried to keep things proportional, but note, as always, actual spending does not match the rhetoric. For example, you might think that the school spending, from Obama's speeches, was all infrastructure, but in fact only $20 out of over $90 billion is for school renovation. The rest is for ... something or other.
Link:
Wonderful graph. Illuminates the political motivations behind the Stimulus Bill.
Obama as Nero
I'm fit to be tied. It seems obvious to me that priority #1 ought to be fixing our financial system -- not stimulus, certainly not cap and trade. Earlier today AIG announced a $60B loss for the year and is taking another $30B in government money. Market is down sharply.
Here's the disconnect: American Express made $2.7B in 2008. It's p/e is less than 5x. Bank of America made $4.0B in 2008. It's p/e is 5.37x. JP Morgan Chase just reconfirmed that first-quarter 2009 is "roughly in line with analyst expectations."
Right now we only have four companies that are truly troubled. AIG, Citi, Fannie and Freddie.
Right now is a perfect time for the government to instill confidence in our financial system, as banks have completed year-end audits, presumably with regulators looking over their shoulders. No one -- including management -- has an incentive to mislead on these results.
Instead, Obama is talking these banks down. We don't need the overhang of stress tests. Instead, all we have is uncertainty.
What I can't figure out is how much these losses are driven by mark-to-market, and when they'll end. Our financials may see further losses from sectors like commercial real estate and credit cards. I have no idea what the plan is for Fannie and Freddie, nor how we plan to replace what used to be the multi-trillion dollar consumer securitization market.
Until we get this righted, GM won't sell many cars ... raising capital gains rates will be moot ... we may have far fewer people making $250,000.
March 2, 2009, 11:22 ammorganovich:
link-
general opinion on wall st is that these "stress tests" are going to be a kangaroo court. they certainly have all the criteria.
capricious and unknown standards (especially as the administration has already told us they plan to stress test a deeper economic drop off that they are forecasting), mandatory penalties, highly politicized.
can the guys who have been screaming about what a problem this is really politically afford to come out with "hey, it's better than we thought. these banks are OK"?
i have some serious doubts.
obama is now beautifully positioned on what will be de facto nationalization for guys like BofA and Wells. he has spoken in opposition, but then he can be "shocked" by the facts and tell everyone the math has spoken and that we have no choice. (and the banks will certainly get little choice) the option to raise private financing is a slippery one. who will deploy that kind of capital into such a fluid regulatory situation, particularly in light of the salary caps that will cause talent flight?
this is going to be an even worse mess than the new deal if they keep this up.
March 2, 2009, 12:30 pmmatt:
And I like how the peak spending is not until well into 2010 and that infrastructure does not become significant as a percentage of stimulus spending until roughly 2013.
March 2, 2009, 1:43 pmEvilRedScandi:
With regards to the Market's response, I saw a priceless comment today (I wish I'd thought of it):
Today, Obama "saved or created" 6730 +/- Dow points.
March 2, 2009, 4:57 pmBob Smith:
And I like how the peak spending is not until well into 2010 and that infrastructure does not become significant as a percentage of stimulus spending until roughly 2013.
It is obvious that spending is timed to
a) occur after recovery would have naturally occurred, allowing Obama to take credit for it, and
March 3, 2009, 1:44 amb) coincide with the election cycle
Allen:
morganovich --> kinda scary to see your comment knowing that one of the issues private companies had in raising capital during the great depression was the looming threat of nationalization.
March 3, 2009, 2:58 pmTDK:
Right now is a perfect time for the government to instill confidence in our financial system, as banks have completed year-end audits, presumably with regulators looking over their shoulders. No one — including management — has an incentive to mislead on these results.
There is a common phenomena in business where new managers take over a going concern and the first act is to immediately declare undeclared losses. These may even be real losses exaggerated as far as plausible. There's a logical reason for this. Any losses in the the first few weeks and months is automatically blamed on the old managers. The new managers effectively have a cushion of undeclared profit that they can release as required and perhaps get credit for.
In the banking industry today everyone is losing money. This seems an excellent time to release bad news. The managers are held responsible anyway and if the losses are made greater then the managers reputation can go no lower. There may even be subsidies available in the short term to sustain the business which will disappear in the medium term.
Therefore I find the idea that there is no incentive to mislead to be wilfully naive.
March 11, 2009, 9:11 am