Larry Summers Should Keep His Mouth Shut


Baseline Scenario has the article Larry Summers Should Keep His Mouth Shut.

TARP made its first round of investments on Monday, October 13, 2008. As of November 21 last year, TARP was about to turn a paper profit, at least according to the Treasury Department, getting $432 billion back on $422 billion in investments. That’s a 2.4% total return over more than five years, or an annualized return of less than 0.5%. If the government had instead put its money into the stock market on Friday, October 10, 2008, it would have earned a total return of 132% over the same period, or more than 18.3% per year. If Treasury had simply used TARP to buy 5-year Treasury bonds and held them to maturity, it would have earned an annual yield of 2.8%. In short the government only got back “substantially more than it invested” if you ignore the time value of money and risk.

Keep this explanation in mind when ever you hear the story that the Government actually made money on TARP.  After looking at these numbers I went back to a record of my own year end net worth over the last few years and compared to my net worth today.  I chose to use these numbers because I had them readily at hand.

From the end of 2009 to today, my net worth is up 49%.  From the end of 2008 to today, my net worth is up 82%.  Outside of my investments, my only income is Social Security and a very small pension from my days at Digital Equipment Corporation.  So, I am actually spending money from my investments to support my living standard, and yet my net worth is up 82% from the bottom year end value. Compare this to Larry Summers’ record of 2.4% gain.  So that’s why they call him a genius?

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