From Bloomberg

The Treasury Department said today the U.S. government’s financial rescue programs will earn a combined profit of about $24 billion, based on current market conditions.

It doesn’t take too much skepticism to think about the ways in which the Governments assessment of gains and losses may fall short. Consider Obama Treasury Celebrates Bailout Profits While Ignoring Costs, Legacy which summarizes

Treasury did not, however, commemorate the hundreds of billions of dollars in taxpayer aid left to be repaid; the billions the Troubled Asset Relief Program will ultimately cost taxpayers; the extraordinary actions of the Federal Reserve and Federal Deposit Insurance Corporation that made Treasury’s bank profits possible; or the fact that the entire enterprise of pumping taxpayer cash into a financial system rife with unrecognized losses will likely be remembered as a “dismal failure,” 

The article goes on to highight outstanding TARP loans to auto companies and insurance companies, $267B in outstanding FDIC insured debt, QE2 and the fact that 9 out of 10 new home loans are guaranteed by the Government.


I’ve always thought one of the most under-appreciated costs of the bailout and 0% interest rates was the costs to Savers. The Fed’s Zero Interest Rate Policy (ZIRP) has had damaging effects on Savers in a broad fashion.

Lower overall interest rates from treasuries to corporates to munis have reduced the income available for bond owners. It’s hard to quantitatively measure the impact of this. We can, however, estimate the cost that effectively 0% interest has had on savers via the pool of Money Market Funds. My back of the envelope analysis:

• From November 2008 to date, Total Money Market Assets have averaged $3.263 Trillion (Investment Company Institute).
• Just prior to November 2008, the average yield on 1mo CDs was 2.07%. Today it stands at 0.13% (Bankrate.com).
• At 2.07%, Savers would have accumulated $164 Billion in interest on their Assets. With rates at 0.13% today, a conservatively guestimated weighted average yield over that period is 0.75% This has netted Savers only $59.74 Billion or $100 Billion less than would have otherwise been the case.

Of course, the longer that ZIRP continues, the more it will continue to cost Savers on their currently $2.7 Trillion in Money Market Savings, earning a measly 0.13%.


Make no mistake, the Government bailouts in no way collectively benefited tax payers when you consider all the costs and benefits. While some costs and consequences are unknown and yet to be entirely borne out, the cost to Savers has been clear.

Everyone is sitting in stop and go traffic on the highway. We are all trying to get to our destination and we can’t be there soon enough. For some it’s financial independence, for others it’s retirement, the ability to leave a legacy, or give back to the world; for other’s still, it’s just piece of mind knowing they don’t have to worry about how much they have. That’s the destination.

But what is the best way to get there?  In the 80s and 90s it seemed pretty easy. Get on the Interstate, put on cruise control, and turn the music up. Good times. Since then, it seems we’ve been in stop and go traffic.

The highway has so many lanes today. It used to be just 3. Stocks, bonds, and cash. Today, we can choose to drive in any number of lanes– Growth stocks, value stocks, mid cap, small cap, Developed International stocks and bonds, Emerging Markets stocks and bonds, Real Asset such as Commodities or Gold, Real Estate, Currencies the list goes on– but they all have stop and go traffic. Even the privileged, exclusive carpool lanes (Hedge Funds, Private Equity, Venture Capital) are crowded and prone to pile-ups these days.

It’s tempting to take the passive approach and just pick a lane and stick to it. After all, nobody can predict which lane is going to move faster and for exactly how long… besides it’s so much less stressful. There is also less risk of accident.  Changing lanes carries risks. And as we’ve all heard thousands of times before, if you just stick with it for the “long-term” you’ll be rewarded with average drive-times and get to your destination in one piece. Stay the course. Nobel prizes have been awarded and successful investment management business have been run according to these theories.

But something doesn’t seem right here. You’ve been sitting in the large cap growth stock lane for 10 years and haven’t gone anywhere! What if the lane you are in is closed up ahead and you don’t even know it? You could be sitting at a standstill for a long-time and risk never making it to your destination. Maybe changing lanes isn’t so risky, maybe the biggest risk is doing nothing at all?

So you’re fed up, tired of sitting in the slow lane and you see that other lane, moving so smartly. Emerging markets stocks/Gold/LT Treasuries. Wow, if you were in that lane, you’d probably be there by now. So you give in and go– make the move– and now your moving! It feels great! Then before you know it. Brake lights. Slowing, slowing, BANG. Rear-ended. What happened?

The lane was moving, but what happens when everybody moves into that lane? Maybe there was a huge pothole in that lane up ahead and everybody was too busy congratulating themselves for being in the right lane to see it. Multi-car pile-up. Traffic timers are a dangerous bunch. Zipping from one lane to the next not knowing what may lie ahead.

So what is the right course of action? Stay in the same lane for too long and you risk being in a dead-end strategy. Change lanes too frequently or erratically and you risk financial accidents.

The answer, as usual, lies somewhere in between. You need to develop the skills and experience required to safely and opportunistically change lanes. You need to know your blind spots and what risks may be hidden there. You need to be able to look through the rear-view mirror to understand what has occurred in the past and how it might impact the road ahead. Most importantly, you need the forward vision necessary to ANTICIPATE both the major road blocks and sections of open road. Lastly, you need to have the proper temperament to resist making the wrong move at the wrong time. Of course, you can always hire a chauffeur with the proper approach to drive for you.