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The Sequestration Vote Is Nothing Like the TARP Vote

Posted By Barry Ritholtz On December 21, 2012 @ 7:20 am In Markets,Politics,Really, really bad calls | Comments Disabled

The ongoing fiscal cliff foolishness continues to be a parade of bad data, ignorant commentary and media hype. The latest silliness: THIS IS JUST LIKE TARP.

Only its nothing like TARP. Indeed, in nearly every significant way that we can c0mpare the two, they have almost no similarities:

Economy: During the TARP vote, the US economy had been in a recession for nearly a year. It would turn out to be the worst Recession since the Great Depression, and would not end until 9 months after the TARP vote took place.

Currently, GDP was just revised up to 3.1%, income and spending are rising. The economy is not anywhere near full capacity, it is at least expanding modestly.

Markets: As of the close the day before the GOP revolted, the S&P500 was up 15% (17% TR) for the year. All major US markets had done well (Futures suggest that may change a bit today).

2008, on the other hand, was a full blown market debacle. When TARP vote came up, 6 of the prior 9 months the SPX was negative. September ’08 alone saw a market dive of nearly 10%. And the S&P500 ended the full year down 38.5%, the worst showing in decades.

• Employment: TARP was voted on in a terrible, near panicky jobs market. The prior year had seen huge monthly drops in NFP — down 489,000 in October 2008, a 432,000 loss in September, and down 274,ooo in August (BLS [1]). Only one month in 2008 had any job gains at all, and that was for a mere 41k. For the calendar year of 2008, we lost over 3.5 million jobs, averaging minus 300, 000 jobs per month.

In 2012, we have been adding between 100,000 – 200,000 new jobs each month. The prior 12 months have added almost 2 million jobs, averaging 157,000 new jobs per month.

Timing: TARP was voted on a month before a presidential elections, with no incumbent running.

The current vote is occurring a month after the incumbent won by a big margin 51% to 47%, with a 332 to 206 electoral college victory, picking up seats in both the House and Senate, and winning a majority of votes cast in Congress.

Leadership: I may not have agreed with what Hank Paulson and Fed Chair Bernanke were doing, but they were out front, and very public in pronouncements. George W. Bush had delegated dealing with the TARP to his economics team, and they showed real leadership.

Currently, Bernanke has said its its outside of the Fed’s purview — and therefor its up to Congress to resolve this. The GOP position — no new taxes or rate increases, regardless — ultimately leads to a tax increase as the Bush cuts expire.

Add to this a power play going on behind the scenes, with Boehner’s chairmanship at risk.
Repercussions for failure: The threat of failure of TARP was pretty dire: Firms like McDonalds and GE would not be able to maker payroll. ATMs might stop working, and there was even fear of having to impose Martial Law.

If Sequestration occurs, we end up with $500B out of 16 trillion economy getting cut; add tax rates going up 3%, returning to 1999 levels. The impact of these are across all of 2013 — not just Jan 1.

Let’s see, 3% tax bump versus Martial Law: Yeah the Sequestration is exactly like TARP.

The best part about the fiscal cliff is how revealing it is of the scaremongers, fools and charlatans, Make your list of fools now, and save it for a future date. You may find it productive.

 

 

 

Previously:
The Price of Paying Attention [2]  (November 3rd, 2012)

Apprenticed Investor: Lose the News [3] (The Street.com, 06/16/05)


Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2012/12/sequestration-is-not-remotely-anything-like-tarp/

URLs in this post:

[1] BLS: http://data.bls.gov/timeseries/CES0000000001?output_view=net_1mth

[2] The Price of Paying Attention: http://www.ritholtz.com/blog/2012/11/information-sources/

[3] Apprenticed Investor: Lose the News: http://www.thestreet.com/story/10228215/1/apprenticed-investor-lose-the-news.html

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