This bill may not be enough and it may already be too late.  Those twoissues are already believed by many people.  At some point we all have to beresponsible for our actions and it is important to have a plan that isnot reliant on Uncle Sam. 

Wilbur Ross predicted 1,000 bank failures.  Warren Buffett said we areat the edge of the abyss of something "terrible, terrible, terrible."Bill Gross and Jeff Immelt have already shown how the access to thecapital markets has been altered greatly.  Triple-AAA rated debtissuers have now been forced to pay 300 to 400 basis points higher thantreasuries and junk bond issuers are forced to pay rates that look like loan shark usury rates.  The worst case may have been taken out.  Butthere are still very cautious times ahead for the near future and thenew president is going to be walking into very difficult times.

The timing in which this TARP bailout package was approved is amazing.The Patriot Act took roughly six weeks to pass into law after September11 as it was signed into law by President Bush on October 26, 2001.This will havetaken less than three weeks from start to finish to pass.

This bailout package may help banks start lending to each other.  Itmight not.  It is our belief that the FDIC insurance limit should havebeen taken up to $500,000 rather than the new $250,000 limit.  One thing is for sure, that $100,000 limit was very old and hadnot been updated in most of our lifetimes.  The banks are still goingto be very cautious in lending to customers.  If you are stillfinancially leveraged at this point then it isn’t going to be a smoothroad ahead.

There are still many bank mergers coming that will prevent failureswhere the strong will get to pick up the weak for pennies.  There arealso going to be more bank failures and there is likely to be moreturbulence.  But this bailout passage will at least help some.  Howthis plays out is yet unknown. As we said, this chapter is not finishedin the history books. 

The process and the levels at which these mortgage derivativesecurities is yet to be an assured outcome.  It may turn out that thebanks cannot afford to sell the assets at even an inflated value intothis buyout pool.  It may turn out that the amount the banks want tosell back to Uncle Sam is so great that the package cannot handle thetotal problem.

We calculated the cost of $700 billion on a "per tax filer basis" and it is going to beheaped on the nation’s debt pile for us and for generations to come.We can hope and pray that this package is enough, but experience shouldbring the reminder that hoping and praying are very poor coreinvestment strategies.

Stay tuned.  You know we will.

Jon C. Ogg
October 3, 2008

So, one issue we wanted to consider, was what exactly does this translate to on a per individual in the U.S.  In 2006, there were more than 133.9 million individual tax returns and the total number of tax returns including corporations, employment taxes, and more came to more than 168.8 million.  We decided to use the larger number of 168.8 million as a representation for the entire tax system rather than just individuals, since the larger number of roughly $2.5 trillion collected was only about half of the total collections from individuals.  After all, we are all in the same soup on bailouts here.

The $700 billion bailout translates to roughly $4,147.00 per filer.  If you wanted to use just the individual tax filings, you would come up with more than $5,200.00.  That is the price of saving Fannie Mae, Freddie Mac, AIG, Bear Stearns, Lehman, Countrywide, and other failed financial institutions via assisted mergers and other bailouts.  We haven’t even gotten to the other failures which are waiting in the wings.

Dare we add in the $600 per individual or $1,200.00 per couple tax rebate stimulus checks that went out this year?  We have also discussed that the entire package could even reach $1 trillion and even the notion of $2 trillion.  These numbers are starting to look astronomical on a per capita basis.  Before long, it might even add up to real money.

Jon C. Ogg
September 22, 2008