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pg. 10 – 11

The following key points summarize economic performance in FY 2008.

*    After increasing by 2.7 percent in FY 2007, consumer spending was slightly negative over the four quarters of FY 2008, with a notable slowing in the final quarter.
*    Exports have been a key driver of the economy, maintaining a steady pace of growth in FY 2008 and accelerating markedly during the latter half of the fiscal year, but the outlook for exports is uncertain in view of the spreading world-wide recession.
*    Labor market conditions deteriorated during FY 2008. Nonfarm payroll employment declined at an average rate of 68,000 jobs per month in FY 2008, compared with the 109,000 average increase in jobs per month in FY 2007.

*   The unemployment rate trended steadily higher throughout FY 2008, reaching 6.1 percent at the very end of the fiscal year, compared to 4.7 percent at the end of FY 2007.
*    Overall inflation, as measured by the consumer price index (CPI), advanced to 5.3 percent in FY 2008, up significantly from the 2.4 percent pace of FY 2007. Core inflation (which excludes food and energy) remained relatively contained, however, rising to 2.5 percent in FY 2008 versus 2.1 percent in FY 2007.

NOTE – The above figures although written in the GAO budget have obviously been revised at this time – unemployment rate admitted to be 7.2% by govt.

– also, inflation has increased significantly regardless of anything economic experts on news outlets say, as partly evidenced by this report and others.


Pg 12 – 14

The Path to Recovery, Part I – HERA

In July 2008, Congress passed the Housing and Economic Recovery Act (HERA) of 2008, based on concern that continued losses at Fannie and Freddie and throughout the U.S. housing/credit market could lead to significantly larger and broader problems for both the U.S. and foreign economies.

HERA established a new regulatory agency: the Federal Housing Finance Agency (FHFA) with enhanced regulatory authority over the housing Government Sponsored Enterprises (GSEs)3, including the capital requirements and business activities of Fannie Mae and Freddie Mac. HERA also provided the Treasury Secretary with temporary authority to purchase any obligations and other securities issued by the housing GSEs.

Due to deteriorating conditions in the housing mortgage markets and the resulting negative financial impact on Fannie Mae and Freddie Mac, FHFA placed them under conservatorship on September 7, 2008. This action was taken to preserve GSE assets, ensure a sound and solvent financial condition, and mitigate systemic risks that contributed to current market instability.

Placing Fannie Mae and Freddie Mac under protection of a conservatorship enabled the Government to avert the initial threat of failure and focus on the larger, systemic challenges, with the ultimate intention of restoring financial stability. Under the conservatorship, the conservator (FHFA) replaced the organization’s senior management and oversaw the continued operation of the GSEs.


Pursuant to the authorities provided to the Secretary of the Treasury under the HERA, the Treasury Department, on September 7, 2008, took three additional steps to help ensure the solvency and liquidity of the GSE while they are working to resolve their financial difficulties:
a    o entering into senior preferred stock purchase arrangements with Fannie Mae and Freddie Mac;
b    o establishing a GSE credit facility; and
c    o establishing a GSE MBS purchase program.


HERA established the HOPE for Homeowners Program4, which provides another stop-gap measure by helping borrowers faced with foreclosure refinance through the Federal Housing Administration. Despite these actions, there was still a pressing need to address the more systemic challenges posed by the credit crisis.

3 The housing GSEs (Fannie Mae, Freddie Mac, and the Federal Home Loan Bank System) are chartered by the Federal Government and pursue a federally mandated mission to support housing finance. Some GSEs are distinctly established as corporate entities – owned by shareholders of stock traded on the New York Stock Exchange. The operations of the housing GSEs are not guaranteed by the Federal Government.

4 HOPE for Homeowners is a voluntary program for the refinancing of distressed loans by providing Federal Housing Administration (FHA) insurance for refinanced loans that meet certain eligibility requirements. Both borrower and lender must agree to participate in the program.


The Path to Recovery, Part II – EESA and TARP
In October 2008, Congress passed and the President signed the Emergency Economic Stabilization Act (EESA), which authorized Treasury to establish and manage the Troubled Asset Relief Program (TARP). In general, TARP authorizes the Government to provide additional protection and stability to financial markets through a wide array of mechanisms:

*           EESA authorizes the Government to purchase or insure up to $700 billion in troubled assets, such as securities and other financial instruments.

*           The Treasury Secretary had immediate access to the first $250 billion. Following that, an additional $100 billion was authorized by the President. The last $350 billion is subject to Presidential approval and Congressional review.

In its first use of the TARP, Treasury created the Capital Purchase Program (CPP) to purchase up to $250 billion in senior preferred shares in a wide variety of banks and other financial institutions. These will be largely non-voting shares, may be sold to a third party, and will pay a 5 percent dividend in the first 5 years, and 9 percent thereafter.

a    Any firm participating in the CPP will provide the Treasury Secretary with a warrant guaranteeing the right to purchase additional common shares worth up to 15 percent of the value of the preferred stock purchased. The purchase price will be the average stock selling price over the 20-day period before the preferred stock purchase. If the company is unable to issue a warrant, it may issue senior debt instead.

b    EESA provides for: (1) oversight by the Government Accountability Office (GAO) and a Special Inspector General; and (2) transparency by requiring Treasury to make available an electronic description of assets acquired under the program.

[my note that the above provision for accountability already exists]

Recovery Efforts and Actions
The following summarizes some of the recovery efforts to date and their impact on and implications for the Government’s consolidated financial statements.

It should be noted that, although HERA and EESA authorize the Government to spend hundreds of billions of dollars in the recovery effort, the majority of those funds have yet to actually be spent, and as a result, are not and would not be reported on the Government’s consolidated financial statements.

Generally, the Government has recorded the funds that have already been spent at cost. The Government expects to recover, if not earn a return on these funds.

Actions by Congress:
*    Passes HERA, which enhanced the regulatory framework and provided temporary authority for the Treasury Secretary to provide financial support to Government Sponsored Enterprises (GSEs).
*    Passes EESA, establishing the Troubled Asset Relief Program (TARP), authorizing the Treasury Department to use up to $700 billion in support of market stabilization efforts. The $700 billion limit shall be reduced by the difference between outstanding and guaranteed obligations under the EESA-authorized insurance program, if any, and the balance in the Troubled Assets Insurance Financing Fund (TAIFF), established by EESA to guarantee timely payments on mortgage-related assets.
*    Legislation only authorizes the Government to engage in specified market relief efforts. Authorizations by themselves do not impact either the Government’s financial statements or the deficit – the exercise of those authorities do.

Actions by the Federal Reserve System (Fed)
*    Lends approximately $30 billion in support of JP Morgan Chase to facilitate its acquisition of Bear Stearns;
*    Agrees to lend up to $85 billion to American International Group (AIG). Subsequent to FY-end 2008, the credit facility was modified and Treasury agreed to purchase $40 billion in Senior AIG preferred stock and will receive common stock warrants for 2 percent of the outstanding AIG common stock;
*    Announces Money Market Investor Funding Facility through which the Fed is authorized to buy $600 billion in CDs and commercial paper to bolster money market mutual funds, and sets up separate facilities to purchase certain AIG assets;
*    Agrees to guarantee $306 billion of Citigroup troubled assets. Pursuant to the agreement, Citigroup would cover the first $37 billion in losses, Treasury would cover the next $5 billion, and FDIC would cover up to $10 billion of additional losses. Treasury and FDIC receive Citigroup preferred stock as part of the arrangement;
*    Announces program to purchase up to $500 billion of mortgage-backed securities and up to $100 billion of Fannie and Freddie debt, and to lend up to $200 billion against new car, student, and small-business loans. Treasury has pledged $20 billion from TARP for this program as well;
*    Under the Supplementary Financing Program, Treasury borrowed $300 billion to increase cash balances at the Fed to support the Fed’s market stabilization efforts.

The vast majority of Fed actions and transactions will not directly impact the Government’s financial statements since the Fed is an independent entity and, while part of the Government, is not considered part of the Federal Government reporting entity. To date, the Government’s exposure is largely limited to any impact that losses from these programs may have on excess profits that the Fed is required to pass on to the Treasury’s General fund.


Actions by Treasury:

Under HERA authority, received preferred stock and warrants, valued at $7 billion as consideration for entering into assistance agreements – recorded as an investment.

Commits to provide up to $200 billion under a preferred stock purchase agreement to ensure that GSEs’ assets and liabilities remain in balance – records $13.8 billion as a liability in FY 2008, based upon the Federal Housing Finance Agency’s notification to the Treasury Department that a payment is due to Freddie Mac, based on Freddie Mac’s September 30, 2008 net worth status.

Fannie Mae did not require a payment in FY 2008. Purchased $3.3 billion in MBS and recorded that amount as a loan receivable in FY 2008.

Under EESA, used over $200 billion to purchase assets of qualifying financial institutions since fiscal year-end as of December 9, 2008. None of these purchases occurred during FY 2008.

Amounts expended under HERA and EESA have been and are expected to be treated as either investments or loans, as the Government may recover and possibly even earn a positive return on amounts invested as economic conditions improve.

As the first quarter of FY 2009 draws to a close, the Government is exploring a number of other recovery strategies. Actions under HERA, EESA, and other initiatives are intended to restore confidence to lenders and consumers, and provide stability to the nation’s economy.

[ . . . ]

Historically, the Government has incurred debt when: (1) it borrows from the public to fund budget deficits, and (2) government funds invest excess receipts in government securities.

However, in FY 2008, this relationship changed, with Treasury borrowing over $300 billion to increase cash balances at the Fed so that the Fed can assist with market stabilization efforts.

The implementation of both HERA and EESA including the Troubled Asset Relief Program (TARP) have the potential to increase future borrowings by more than $1 trillion. Substantial borrowings in FY 2009 and beyond are expected to fund stock and asset purchases at financial institutions across the country.
At the end of FY 2008, the Government had incurred $10 trillion in debt, comprised of: debt held by (or owed to) the public (i.e., publicly held debt) and intragovernmental debt (i.e., debt the Government owes to itself).

Publicly held debt (a balance sheet liability) includes all Treasury securities (e.g., bills, notes, and bonds) held by individuals, corporations, Federal Reserve banks, foreign governments, and other entities outside the Government.

Intra-governmental debt is primarily held in the form of special nonmarketable securities by various parts of the Government. Laws establishing Government trust funds generally require excess trust fund receipts to be invested in these special securities.

Intra-governmental debt is not shown on the balance sheet because claims of one part of the Government against another are eliminated for consolidation purposes (see Financial Statement Note 11).
Gross Federal debt [ . . . ]
Congress established a dollar ceiling for Federal borrowing, which has been periodically increased over the years (most recently from $9.8 trillion to $10.6 trillion in 2008). At the end of FY 2008, the amount of debt subject to the limit was $9.96 trillion, $655.2 billion under the limit. In October 2008, in connection with the passage of EESA, the limit was raised again to $11.3 trillion.


pg 165 (numbered 159  in report)

Research and Development
Federal investments in research and development (R&D) comprise those expenses for basic research, applied research, and development that are intended to increase or maintain national economic productive capacity or yield other future benefits.

Investments in basic research are for systematic studies to gain knowledge or understanding of the fundamental aspects of phenomena and of observable facts without specific applications toward processes or products in mind.

Investments in applied research are for systematic studies to gain knowledge or understanding necessary for determining the means by which a recognized and specific need may be met.

Investments in development are the systematic use of the knowledge and understanding gained from research for the production of useful materials, devices, systems, or methods, including the design and development of prototypes and processes.
With regard to basic and applied research, the Department of Health and Human Services (HHS) had $16.6 billion (60 percent) and $11.4 billion (53 percent), of the total basic and applied research investments, respectively, in fiscal year 2008 as shown in Table 11. HHS also had similar R&D investment amounts (and percentage contributions) in each of the preceding 4 years.
Within HHS, the National Institutes of Health (NIH) conducts almost all (97 percent) of the department’s basic and applied research. The NIH Research Program includes all aspects of the medical research continuum, including basic and disease-oriented research, observational and population-based research, behavioral research, and clinical research, including research to understand both health and disease states, to move laboratory findings into medical applications, to assess new treatments or compare different treatment approaches; and health services research.
The NIH regards the expeditious transfer of the results of its medical research for further development and commercialization of products of immediate benefit to improved health as an important mandate.
With regard to development, the DOD and the NASA had $65.2 billion (82 percent) and $11.4 billion (14 percent), respectively, of total development investments in fiscal year 2008, as shown in Table 11. DOD changed its methodology for reporting yearly investments in research and development during fiscal year 2008 which affected the current and prior 4 years. Their data is based on research and development outlays (expenditures). As a result, the total amounts of investments in development (Table 11) have been restated. Development is comprised of five stages: advanced technology development, advanced component development and prototypes, system development and demonstration, management support, and operational systems development. Major outcomes of DOD development are:

Hardware and software components, or complete weapon systems, ready for operational and developmental testing and field use, and

Weapon systems finalized for complete operational and developmental testing.
NASA development programs include activities to extend our knowledge of Earth, its space environment, and the universe, and to invest in new aeronautics and advanced space transportation technologies that support the development and application of technologies critical to the economic, scientific, and technical competiveness of the United States. Some outcomes and future outcomes of this development are:

The Constellation Systems program to develop, demonstrate, and deploy the capabilities to transport crew and cargo for missions to the lunar surface and safely return the crew to Earth.

Robotic spacecraft that use electrical power for propulsion, data acquisition, and communication to accurately place themselves in orbit around the surfaces of bodies about which we may know relatively little.

The Fundamental Aeronautics Program conducts research to enable the design of vehicles that fly through any atmosphere at any speed. A key focus will be the development of physics-based, multidisciplinary design, analysis, and optimization tools to address the multiple design challenges in future aircraft.

The James Webb Space Telescope is a large, deployable infrared astronomical space-based observatory. The mission is a logical successor to the Hubble Space Telescope, extending beyond Hubble’s discoveries into the infrared, where the highly red shifted early universe must be observed, where cool objects like protostars and protoplanetary disks emit strongly, and where dust obscures shorter wavelengths.

The study of the dynamic Earth system to trace effect to cause, connect variability and forcing with response, and vastly improve national capabilities to predict climate, weather, natural hazards, and conditions in the space environment.



from Evidence-based Policy Report (UK)

This is not to say that most policy develops in such a linear way from first identifying the evidence, balancing the options and then developing and evaluating the resulting policy. As set out by the Chief Government Social Researcher, the idea of ‘evidence-inspired’ policy making might be more appropriate (Duncan, 2005). Amongst those interviewed, there was a clear distinction between the theory or ideal behind evidence-based policy and the realities of making policy in the real world.“…but that is very much an ideal, that’s very much a theory, which is sometimes overturned by events.”The reality of policy making was described as messy and unpredictable, rarely progressing in a linear fashion. Evidence was clearly just one factor which policy makers took into consideration when developing or implementing policy. Other factors and real-world events and crises all exerted an influence to a greater or lesser degree depending on the policy. Most importantly, the timing of most policies rarely allowed for a linear and methodical evaluation of the evidence. Evidence-based policy making, therefore, was not seen as something that is conducted in isolation. Although most of the policy makers were obviously uncomfortable with the idea of policy made ‘on the hoof’ in response to some pressing need to respond to an issue or on the basis of anecdote or media pressure, they acknowledged that a purely evidence-based approach was rarely possible.



– my comments –

I’ve been hearing on the news, even from government officials and Congress members including Barney Frank – that there is no accountability for recipients of the first TARP funds that were originally issued – nor those funds that were also used prior to that last year as emergency funds.

The fact is otherwise and can be found in the above document from the US government Accountability Office. In fact, I think I read that in the wording of the legislation originally passed on the TARP funds and in those other bailouts for “the housing bill” that Congress passed, for GSE’s, in the AIG bailout dollars and at the increased limits at the credit windows, etc.

Okay – so what the hell is this now? Are these government workers and elected members just pretending not to know this stuff or are they deciding that it is too much for them to find out how these funds have been used?

Obviously, there are the economic signs of literally a depression rather than a recession at this point and these dynamics are based on the basic definitions of an economic depression. It looks like a shallow depression that has been articulated to be shallow at this point. However, it is spreading out so far and so fast, that I would question what it will become next, having been artificially and unnaturally flattened and shallowed from what it would’ve been otherwise. My guess – a scientific wild-ass guess, at best – is that we’ve come to the “oh, hell” part of the equation.

that said, there is a serious uncontained fault in the foundation of our economy and I think it means that under the current stresses, this and other weaknesses could be amplified and cleaving long before anything could be done to stop it. Our cash / currency foundation is resting on projections that are based on faulty logic and pre-supposed factors that no longer exist. I would say that is now a serious problem because it has been a supporting structure for all US currency and asset values. That is a big fault line in the foundation.

– cricketdiane