March2,2009

DearLimitedPartners:

WerecentlyconcludedourthirdyearofoperationsattheHaymanCapitalfundsandarefortunateto
havereturnedaboveaverageresultsforourlimitedpartnersduringaverytumultuoustime.Hayman
CapitalMaster,L.P.(theMasterFund)hasreturned+340%netofallfeesandexpenses*sinceits
inceptioninFebruaryof2006,whiletheS&Phasreturned42.37%.Forthoseofyouwhohavenotbeen
withussinceinception,theMasterFundsannualreturnsfor2006,2007,2008and2009(yeartodate),
were+20.27%,+216.64%,+6.13%and+9.03%,respectively.Theseresultsaretheproductofmany
sleeplessnights,intensegovernmentalaction,andcountlessdiscussionsamongourinvestmentteam
withregardtoourmacroviews.Whileitwouldberepetitivetorevisithowwehavearrivedatthispoint
inworldhistory,laterinthisletterIwilldiscussatlengthoneofthekeyfactorsthatwebelievewill
determineourfuturedirection.Needlesstosay,wehavefocusedonriskmanagementbystructuring
ourpositionswiththemostasymmetricrisk/rewardscenariospossible.Thiscommunicationmaybethe
mostimportantletterwehaveeverwritten.

Asoundbanker,alas!isnotonewho
foreseesdanger,andavoidsit,butone
who,whenheisruined,isruinedina
conventionalandorthodoxwayalong
withhisfellows,sothatnoonecanreadily
blamehim.Itisnecessarilypartofthe
businessofabankertomaintain
appearances,andtoconfessa
conventionalrespectability,whichismore
thanhuman.Lifelongpracticesofthis
kindmakethemthemostromanticand
theleastrealisticofmen.

JohnMaynardKeynes,Consequencesto
JohnMaynardKeynesDoeshehaveitright?
theBanksofaCollapseinMoneyValues(1931)

The38YearExperiment

Asanationandaworld,wearecomingtoanimportantcrossroadwiththebelief(whetheritbeforced
orsimplyaccepted)in"fiat"currency.TheOldEnglishDictionarydefinesfiatas:

fiat.[a.Latin'letitbedone';'lettherebemade']

Inshort,fiatcurrencyismoneythatexistsbecauseanauthority,governmentorcustomsimplydeclares
orforcesittobeassuch.TheAmericanHeritagedictionarydefinesfiatcurrencyas"papermoney
declaredlegaltender,notbackedbygoldorsilver."Ithinkoffiatcurrencyasbeingpapermoneywith
nointrinsicvaluewhichhasbeensimplydeclaredtobelegaltender.Uptothispoint,ithasbeenwidely
acceptedthatcurrencyormoneyisworththegoodsandservicesforwhichitisroutinelyexchanged.I
hopethisremainsthecase,butthinkthattheoddsareagainstit.Inthepast,Ihavestatedmybelief
thatthereisnotenoughmoneyintheworldtosoakupthetensoftrillionsofdollarsofdeleveraging
thatmustoccuroverthenextfewyears.Thiscouldnotbetruerthanitistoday.WhileIdonothavea
solution(andmaybeitdoesnotexist)totheproblemsfacingustoday,whatIdoknowisthat
attemptingtoreleveramassivelyoverleveragedsystemisclearlyNOTtheanswer.The
disintermediationofriskisoneoftheprimarycausesofthecurrentproblemanditisNOTthesolution.
AlanGreenspansaiditbestwhenhewroteGoldandEconomicFreedomin1966(beforeheenteredthe
FederalReserveSystem;sincethen,hehasbeensilentonthesubject):

Theabandonmentofthegoldstandardmadeitpossibleforthewelfarestatiststouse
thebankingsystemasameanstoanunlimitedexpansionofcredit.Theyhavecreated
paperreservesintheformofgovernmentbondswhichthroughacomplexseriesof
stepsthebanksacceptinplaceoftangibleassetsandtreatasiftheywereanactual
deposit,i.e.,theequivalentofwhatwasformerlyadepositofgold.Theholderofa
governmentbondorofabankdepositcreatedbypaperreservesbelievesthathehasa
validclaimonarealasset.Butthefactisthattherearenowmoreclaimsoutstanding
thanrealassets.Thelawofsupplyanddemandisnottobeconned.Asthesupplyof
money(ofclaims)increasesrelativetothesupplyoftangibleassetsintheeconomy,
pricesmusteventuallyrise.Thustheearningssavedbytheproductivemembersofthe
societylosevalueintermsofgoods.Whentheeconomysbooksarefinallybalanced,
onefindsthatthislossinvaluerepresentsthegoodspurchasedbythegovernmentfor
welfareorotherpurposeswiththemoneyproceedsofthegovernmentbondsfinanced
bybankcreditexpansion.

Intheabsenceofthegoldstandard,thereisnowaytoprotectsavingsfromconfiscation
throughinflation.Thereisnosafestoreofvalue.Iftherewere,thegovernmentwould
havetomakeitsholdingillegal,aswasdoneinthecasegold.Ifeveryonedecided,for
example,toconvertallhisbankdepositstosilverorcopperoranyothergood,and
thereafterdeclinedtoacceptchecksaspaymentforgoods,bankdepositswouldlose
theirpurchasingpowerandgovernmentcreatedbankcreditwouldbeworthlessasa
claimongoods.Thefinancialpolicyofthewelfarestaterequiresthattherebenoway
fortheownersofwealthtoprotectthemselves.

Thisistheshabbysecretofthewelfarestatiststiradesagainstgold.Deficitspendingis
simplyaschemeforthehiddenconfiscationofwealth.Goldstandsinthewayofthis
insidiousprocess.Itstandsasaprotectorofpropertyrights.

AlanGreenspan,GoldandEconomicFreedom,1966

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TheUnitedStatesabandonedthegoldstandardonAugust15,1971,inanexecutiveordersignedby
thenPresidentNixon.Atthatmomentinhistory,theUnitedStatesdecideditwouldnolongerredeem
itspaperdollarsforgold.ItisaninterestingpointtopondertheUnitedStateshasbeenoperatingina
systemoflimitlesscreditcreationforONLY38years.38yearsisnotanextensiveperiodoftimewhen
reflectingonworldhistory.Intheabsenceofourcurrency'smandatoryconvertibilityintoaprecious
metal(ormoreimportantly,afiniteresource),ourownFederalReserveBankhasbeentaskedwith
preventinginflation(orthedevaluingofourfiatcurrencybyprintingtoomuchofit).Generally,the
UnitedStateshasbeencreatingcreditandexpandingitsGDPandnationaldebtloadforthepast38
years.Interestrateshavecomedowntozeroandtheoldeconomicprincipleofdiminishingmarginal
utilitywasjustappliedtothelastincrementaldollarofcreditmarketdebt.Theproverbialinmateshave
beenrunningtheasylum.TheonlyinstitutionintheworldthatcanLEGALLYcounterfeittheU.S.Dollar
issupposedtopolicetheunrulydebasementofourcurrency.

Leninwascertainlyright.Thereisnosubtler,nosurermeansofoverturningtheexisting
basisofsocietythantodebauchthecurrency.Theprocessengagesallthehiddenforces
ofeconomiclawonthesideofdestruction,anddoesitinamannerwhichnotoneman
inamillionisabletodiagnose.

JohnMaynardKeynes

Asacountry,wenowfacerunninga$1.5$2.0trillionoperatingdeficitinexcessofroughly$2.1trillion
ofgovernmentrevenue(ifwearelucky).IftheU.S.wereapubliccompany,notevenKenLewiswould
considerpurchasingus(atapremiumnodoubt).Asanattachmenttothisletter,enclosedistheUnited
Statesbalancesheetandincomestatement.Iencourageyoutolookthroughtheminorderto
formulateyourownopinionofentitlementspendingandgovernmentreceipts.Interestinglyenough,
afterquizzingsomeofthegreatassetmanagersintheworld,veryfewcouldevengetclosetoguessing
thegovernmentreceiptsnumber.Iguessitjustdoesnotmatteranymore.

Tothebestofourknowledge,therehasonlybeen160,000metrictonsofgoldEVERminedintheworld.
At$950perounce,allofthegoldintheworldwouldbeworth$4.887trilliondollars.Ontheother
hand,weestimatethatthereisroughly$60trillionoffiatmoney(includingcurrencies,deposits,savings,
moneymarketsandCDs)intheworld.Giventhefactthatworldgovernmentsarecaughtwithsomuch
creditmarketleverageandlosses,webelievethattheywillintrueKeynesiancolorattempttoprint
theirwayoutofthismess.Ifthisoccurs,youhavetoaskyourself:Howmanyofpeopledoyouthinkit
willtaketobegintoquestionthevalueofpapercurrencywhenitisbeingdebasedinanattempttosave
worldgovernments?Ifasmallfractionofthemstopbelieving,wherewilltheygotopreservetheir
wealth?MyguessistheU.S.dollarandpreciousmetals.

TheBadNews?TheRestoftheWorldLooksWorse

ThesilverlininginourresearchisthattheU.S.isoneoftheleastleveredcountriesintheworld!Just
sayingthatputsabitoffearintome,butitistrue.TheU.S.islessleveredandlessexposedtoradical
economicdeteriorationthanWesternEurope.ItisalsofarlessdependentthanEastAsiaonworldwide
tradethatisabyproductofthenetaggregatedemandthatpreviouslyemanatedfromtheU.S.and
otherpartsofthedevelopedworld.EastAsiaisquicklycatchinguptoCentralandEasternEuropeasthe
mostafflictedregionoftheglobaleconomy.
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Ofcourse,anobserverwouldnotbeexpectedtoknowthisbasedontheforecastsandpredictionsmade
byglobaleconomicandfinancialbodiessuchastheIMF.AccordingtotheirJanuaryWorldEconomic
OutlookUpdate,theworldeconomywillgrowthisyearbyalmost0.5%despitethreeofthefourtop
economiesintheworldrecordingnegativeseasonallyadjusted,annualizedgrowthinQ42008of
between6.2%and12.7%.However,thisisthesamebodythatenteredintobailoutagreementswith
Hungary,UkraineandLatviawithGDPassumptionsvaryingbetween1%and2%for2009,onlyto
watchHungaryandLatviapost12%and23.6%annualizeddeclines,respectively,inQ42008GDP,
whiletheUkrainescrapedbywithamild20%GDPcontractionyearoveryearinJanuary2009.

Surprisingly,consideringthecatalystforthecurrentcrisiscamefromtheU.S.,andthemajorityof
worldwideeconomicopinionhasbeendevotedtotheadmittedlysizeableproblemsfacingtheU.S.
economy,thescorecardsofarreflectsarelativelymilddownturncomparedtotherestoftheworld.

Acomparisonofreported4thquarterannualizedGDPdeclinesisinstructive.Shownbelow,
representativesfromWesternEurope,EastAsiaandEmergingEuropeareallcurrentlycontractingfaster
thantheU.S.

AnnualizedGDPGrowth(Q42008)

0%
5%
10%
15%
20%
25%

Source:Bloomberg,respectiveMinistriesofFinance.

WesternEurope

Asthehomeoftheworldsmostgrosslyoverleveragedbankingsystemsandthebearerofover$4.9
trillion(USD)ofexposuretothedevelopingandemergingmarkets,WesternEuropeisdeteriorating
evenfasterthantheU.S.

WhiletheU.S.isexperiencingadeclineinindustrialproduction,itisnoworsesofarthan1975and
significantlylessthanthatduringtheGreatDepression(whichisasideeffectofnolongerbeingthe
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repositoryoftheworldsmarginalindustrialcapacityatitlewehavehandedovertothetradesurplus
nationsofEastAsiaandEurope):

UnitedStatesYoYIndustrialProduction(1920Present)

IndustrialproductionacrosstheentireEurozoneisdecliningatitsfastestrateonrecord:

EurozoneYoYIndustrialProduction(exConstruction)(1986Present)

Themassivedropoffinworldtradeandtherecessionofglobalaggregatedemandishittingtheexport
powerhousesofEuropeinparticular.BothSwedenandGermanyhaveseendropsinindustrial
productionthatdwarftheU.S.inbothabsoluteandhistoricalterms.Swedenisfaringworsethan
duringitscrisisoftheearly90s,andGermanyisalreadyworsethaneventhechallengingperiodof
reunification:

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SwedenYoYIndustrialProduction(1991Present)

GermanyYoYIndustrialProduction(1992Present)

EastAsia

MeanwhileinEastAsiatheconsumerstrikefromtheU.S.andothernetaggregatedemandeconomies
hashadadevastatingimpactonindustrialproductionandexports.InSouthKorea,industrial
productionandexportsaredecliningmorerapidlythanduringtheAsianfinancialcrisis:

SouthKoreaYoYIndustrialProduction(1976Present)
SouthKoreaYoYExports(1967Present)

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ThestoryisthesameinTaiwan:

TaiwanYoYIndustrialProduction(1997Present)

TaiwanYoYExports(1994Present)

Andintheworldssecondlargesteconomy(andcurrentlymostindebtedsovereignnation),azombified
Japanisstartingtoconvulseasindustrialproductiongrowthhitanalltimelowof20.8%yearoveryear
inDecember2008,andexportsarecurrentlyfallingoffacliff:

JapanYoYIndustrialProduction(2004Present)
JapanYoYExports(1986Present)

ChinaCantHandletheTRUTH

TheonlyglimmerofhopeintheglobaleconomyatpresentispotentialforamassiveChinesestimulus
packagetojumpstarttheslowingChineseeconomyandrenewitspreviouslyinsatiabledemandfor
commoditiesaswellasdevelopinganewsourceforaggregatedemandamongChineseconsumers.
EvenassumingthatitwouldbepossiblefortheChineseeconomy(accountingforamere7%ofworld
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GDP)toexpanditsdomesticconsumptiontoreplaceanannualized28%Q4declineinU.S.retail
spending,thereisnosignthatitsevenheadingintherightdirection.

InJanuary,Chinareporteda17.5%dropinexportsanda43.1%dropinimportsyearoveryear.By
themselves,thedatapointsindividuallyreflectaremarkabledeclineintradevolumethatisonly
partiallyexplainedbytheseasonalfactors,buttogethertheyreflectthatinternaldemandforexternal
goodsandservicesisdecliningastheimport/exportgapexpandsratherthanshrinks.

ChinaYoYImports(1995Present)
ChinaYoYExports(1995Present)

ThisbringsustoourdoubtsaboutthequalityofChinascurrentgrowth.Theofficial6.8%yearover
yearQ4growthreleasedbytheChinesegovernmentseemsunsustainablewhenconsideredwiththe
figuresonChinesepoweroutput.

MonthlyChinesePowerOutput YOY%Increase/(Decrease)
30%
25%
20%
15%
10%
5%
0%
5%

Source:Bloomberg.

Jan09

Jul08

Jan08

Jul07

Jan07

Jul06

Jan06

Jul05

Jan05

Jul04

Jan04

Jul03

Jan03

Jul02

Jan02

Jul01

Jan01

Jul00

Jan00

10%

ThefutureofChinasgrowthlooksgrimconsideringwhathappenswhenyoucharttheOECDChina
LeadingIndicators12Month%ChangeindexwithpreviousChineseGDPgrowth:
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ChinaYoYGDPversusOECD12MonthLeadingIndicatorIndex(1995Present)

JustHowBigistheGlobalDebtTidalWave?

WeregonnaneedabiggerboatChiefBrody,Jaws,1975

Wehavespentthegoodpartof6monthscombingthroughtherestoftheworld'ssovereignbalance
sheetsandincomestatementsinordertounderstandjusthowmuchleveragewearereallyworking
with.Theresultsofourstudyarenothingshortofshocking!Itisnowcleartomewhywearewherewe
aretoday.ThecruxoftheproblemwasnotsubprimeorAltAmortgageloans,norwasitthisbankor
thatbank.Itwastheproblematthehighestoftheorder.Governmentsofcountriesaroundtheworld
allowedtheirbankingsystemstogrowunchecked.Thelimitlesscreditcreationaffordedbyfractional
reservebankingandfiatcurrencieshasgrownintoamassiveand,insomecases,untenableliabilityfor
thehostcountry.WhenIcelandfailed,itpromptedustolookdeeperintohowandwhyasovereign
governmentcouldgettothebrinkofdisasterandthenjumpin.OthersdismissedIcelandasasmall
fishingvillageof300,000peopleanda$19billionGDP.WhenwelookedinsideIceland,ithelpedbuild
thebasisforourcurrentunderstandingfortherestoftheworld.Icelandwasbrokenasacountrydue
totheirgovernmentallowingahandfulofbankstogrowtoover$200billionofloans.Remember,the
country'sgrossoutputwasjust$19billion,andthegovernment'sincomeisjustafractionofGDP.
Icelandhadletitsbankingsystemgrowtoover10Xthesizeoftheentirecountrysoutput!

WhenweexaminethesizeofvariouscountriesexistingsovereigndebtburdensandtheirMonetary
FinancialInstitution(MFI)assetsrelativetogovernmentreceiptsandGDP,theresultsarestaggering
andfrightening.Toprovideasenseofscale,considerthis:combinedMFIassetsoftheEU27,theU.S.,
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andJapantotal$86trillion(USD).Whilethenameshavebeendisguisedtoprotecttheguilty,the
followingsamplecapturescountriesofEuropeandAsia,aswellastheU.S.:
35x

30x

70%
CumulativeMFIAssets&
SovereignDebtasaMultipleof
GovernmentRevenues
GovernmentRevenuesas%GDP

60%

25x

50%

20x

40%

15x

30%

10x

20%

5x

10%

0x

0%

9.0x

MFIAssetstoGDP
NetSovereignDebttoGDP

8.0x

7.0x

6.0x

5.0x

4.0x

3.0x

2.0x

1.0x

0.0x

Source:IMF,EuropeanCommission,respectiveMinistriesofFinance,andHaymanAdvisors,L.P.sestimates.
Source:IMF,EuropeanCommission,respectiveMinistriesofFinance,andHaymanestimates.

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IconsiderProfessorKennethRogoff(ThomasDCabotProfessorofPublicPolicy,Departmentof
Economics,HarvardUniversity)tobeoneoftheworld'sforemostexpertsonsovereignbalancesheets
andthehistoryofsovereigndefaults.HeworkedwithGeithnerattheIMF,BenBernankeatPrinceton,
andevenintroducedLarrySummerstohiswife.Hehaswrittenmanypapersonthesubject,andIfound
ThisTimeisDifferent:APanoramicViewofEightCenturiesofFinancialCrises(April2008)(see
http://www.economics.harvard.edu/faculty/rogoff/files/This_Time_Is_Different.pdf)tobeoneofthe
bestpiecesofworkonthesubjectofgovernmentsgettinginovertheirheadsandtheinevitable
consequencesthatfollow.WhatProfessorRogoffconcludesisthatcapitalmobilityandsubstantial
foreigninvestmentaretwooftheprimarydeterminantstotheconditionsthattypicallyprecede
sovereigndefault.Inpriorworks,suchas"DebtIntolerance"(2003),hetriestounderstandthe
thresholdlevelsofdebtthatare"sustainable"formanyemergingeconomies.Whenweappliedthe
recentresultsofourworktotheconclusionsdrawnbyRogoff,theresultwassomethingthatnoneofus
haveeverimaginedcouldhappen.Ourworksuggestedthattherecouldbea"cluster"ofgovernment
defaultsoverthenextthreeyears(orpossiblysooner).Doyouknowwhatpercentageoftheworld's
sovereigngovernmentsindefaultedintheyear1934?Remember,thebrevityoffinancialmemoryis
remarkable.

PercentofCountriesinDefaultonorRestructuringtheirSovereignExternalDebt(18002006)
ResultoftheGreatDepression
andWorldWarII

ResultoftheEmerging
MarketDebtCrisis

Source:CarmenM.ReinhartandKennethS.Rogoff.ThisTimeisDifferent:APanoramicViewofEightCenturiesofFinancialCrises.April16,
2008.

Rogoffstatesthat:

Wefindthatserialdefaultisanearlyuniversalphenomenon[.]Majordefaultepisodes
aretypicallyspacedsomeyears(ordecades)apart,creatinganillusionthatthistimeis
differentamongpolicymakersandinvestors.Arecentexampleofthethistimeis
differentsyndromeisthefalsebeliefthatdomesticdebtisanovelfeatureofthe
modernfinanciallandscape.Wealsoconfirmthatcrisesfrequentlyemanatefromthe
financialcenterswithtransmissionthroughinterestrateshocksandcommodityprice
collapses.Thus,therecentUSsubprimefinancialcrisisishardlyunique.Ourdataalso
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documentsothercrisesthatoftenaccompanydefault:includinginflation,exchangerate
crashes,bankingcrises,andcurrencydebasements.

IrecentlyhadtheopportunityandprivilegetomeetanddiscusswithProfessorRogoffourwork,and
aftercarefulconsiderationandreview,hewasverycomplimentaryofourresearchandintriguedbythe
considerationouranalysisgivestocontingentliabilitiesarisingfromMFIassets.

CompetitiveDevaluationDon'tGetRopeADoped!

Asaresultoftheworld'sbankingsystemsbeingmultiplesofthehostcountry'sGDPandmanymultiples
ofgovernmentreceipts,thecountrieshaveonlyafewwaysthroughthis.Whatwehavewitnessedover
thepastfewmonthsisthatgovernmentsaroundtheworldhavedecidedtomaintainthestructural
stabilityoftheirbankingsystemsinordertopreservethetrustoftheirpeople.Basically,governments
aroundtheworldhavetosavetheirbanksevenifitmeansbringingthesovereignintoanuntenable
position.Themostlikelypaththattheworld'sKeynesianswilladoptisthemoneyprintingpress.Even
ourownBenBernankehasexhibitedhisloveforhisprintingpress.Inhisnowinfamous2002
"Helicopter"speech,Mr.Bernankestated:

Indeed,underafiat(thatis,paper)moneysystem,agovernment(inpractice,thecentral
bankincooperationwithotheragencies)shouldalwaysbeabletogenerateincreased
nominalspendingandinflation,evenwhentheshorttermnominalinterestrateisat
zero[.]Whathasthisgottodowithmonetarypolicy?Likegold,U.S.dollarshavevalue
onlytotheextentthattheyarestrictlylimitedinsupply.ButtheU.S.governmenthasa
technology,calledaprintingpress(or,today,itselectronicequivalent),thatallowsitto
produceasmanyU.S.dollarsasitwishesatessentiallynocost.Byincreasingthe
numberofU.S.dollarsincirculation,orevenbycrediblythreateningtodoso,theU.S.
governmentcanalsoreducethevalueofadollarintermsofgoodsandservices,whichis
equivalenttoraisingthepricesindollarsofthosegoodsandservices.Weconcludethat,
underapapermoneysystem,adeterminedgovernmentcanalwaysgeneratehigher
spendingandhencepositiveinflation."(emphasisadded)

Now,thethingthatscaresmethemostaboutthatspeechisthefactthatMr.Bernankesays"at
essentiallynocost."WhenIlookbackintohistory,almosteveryexperimentwithfiatcurrencyhas
endedpoorly.Actually,thethingthatdisturbsmethemostisBernanke'sacademiccomfortinthefact
thathisprintingpresshasenoughink.HisKeynesianideologyworksbestinavacuumoutsideofthe
realworld.Thefactthathethinksstealingmoneyfromthesaversinhiseconomyandconfiscatingit
throughthehiddentaxofinflation/currencydebasementshouldscareeveryone.

Weareabouttoenteratimeinwhichalloftheworld'scentralbankswillbreakouttheinkandstart
printingtoattempttocoveruptheirmistakes.Ifyouarefollowingstocksorbonds(likein1923
GermanyorArgentinain2001),youarelikelytogetropeadopedbecauseyouarenotwatchingthe
governmentstealyourhardearnedsavingswiththeirprintingpresses.Itistimetodefendyourselves
fromthisinsidiouscrimeagainstthefinanciallyprudent.

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ApassagefromTheCreaturefromJekyllIslandbyEdwardGriffin:

Indeed,ourfoundingfathersintendedtoprohibittheFederalGovernmentfromissuing
billsofcredit,considerthis...ThefirstdraftoftheConstitutionwascopiedinlarge
measurefromtheArticlesofConfederation.Whenitwastakenupforconsiderationby
thedelegates,therefore,itcontainedtheoldprovisionthathadcausedsomuchchaos.It
stated:"thelegislatureoftheUnitedStatesshallhavethepowertoborrowmoneyand
emitbillsofcredit."But,afteralivelydiscussiononthematter,theoffendingprovision
wasvotedtoberemovedfromtheConstitutionbyanoverwhelmingmargin.Voicingthe
sentimentofthemajorityofthedelegates,AlexanderHamiltonsaid:"toemitan
unfundedpaperasthesignofvalueoughtnottocontinueaformalpartofthe
Constitution,noreverhereaftertobeemployed;being,initsnature,repugnantwith
abusesandliabletobemadetheengineofimpositionandfraud.

Atthetime,GeorgeWashingtonstated,"Wemaybecomeagreatcommercialandflourishingnation.
But,ifinthepursuitofthemeansweshouldunfortunatelystumbleagainonunfundedpapermoneyor
anysimilarspeciesoffraud,weshallassuredlygiveafatalstabtoournationalcreditinitsinfancy."

IftheFederalReservebeginstopurchaselargequantitiesofnewlyissuedTreasurybondsthe
electronicequivalentoftheprintingpresswebetterholdontoourwallets!Thegoodnewsforthe
UnitedStatesisthefactthat,asapercentofGDP,itwillnothavetoprintnearlyasmuchasmanyparts
oftherestoftheworld.

WhatworriesmethemostaboutouranalysisisthefactthattheU.S.willhavetoissue$2.35trillion
newTreasuriesthisyear,andcollectively,Europewillhavetoissueevenmore.Today,ChinaandJapan
own65%oftheforeignownershipofU.S.Treasuries.HaveyouseenwhatishappeningtoChinaand
Japanlately?Itdoesnotseempossiblethatthereisanywherenearenoughmoneyintheworldtobuy
thatmanyTreasuries.

Tobeclear,webelievethattheU.S.(andinfact,theworld)isinanongoingdebtdeflationaryspiralthat
willlikelycontinueforsometime(possiblyyears).Therampantprintingofcurrenciesaroundtheglobe
isnot,inouropinion,likelytobeimmediatelyinflationary(inthecommonunderstandingoftheterm)
asleveragecomesoutoftheprivatesectorandassetvaluescontinuetodecline.Thegreaterconcernis
thepotentialinflationarytimebombthatgrowsasgovernmentscontinuetoborrow,printand
stimulate.Whathappenstoinflationwhenthevelocityofmoneygoesfromzeroto100?

Givenalloftheabove,weareveryconfidentintwopredictions:

1. TheU.S.isinrelativelybettershapethantherestoftheworld,andthedollarwillbeasafer
currencythanvirtuallyanyother(andyes,thatincludestheYen).

2. Uncertaintyandfeararerampant.Confidenceingovernmentalandcentralbankleadership(are
thetworeallythatseparate?)isplummetingworldwide.Asaresult,webelievepeoplewilllook
tooldfashionedstoresofvaluethosewhichrepresentedmoneylongbeforegreenpiecesof
paperbackedbyapromiseexisted.Indeed,investorshavealreadybegunmovingintoprecious
metals.Weexpectthiswillcontinue.

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BankDebtStillTooEarly

Wehavespentaconsiderableamountoftimeanalyzingthebankdebtmarketsandlookingfor
investmentopportunities.Whilethisassetclasshasperformedwellsinceitslowsinthe4thquarter
2008,webelievethatnowisnotthetimetoenterthisspace.Weareconcernedaboutinvestmentsin
thisarenaforanumberofreasons:

S&Ppredictsthatapproximately23%ofallspeculativegrade,nonfinancialissuerswilldefault
inthiscycle.Webelievethispredictiondrasticallyunderestimatestheseverityoftheproblem
andtheactualnumberwilllikelyapproach50%.ImagineaworldwhereHALFofthese
investmentsfilebankruptcy.Toaddinsulttoinjury,webelieverecoverieswillbewellbelow
historicalnorms,asevidencedbyrecentbankruptcyfilings.
ManyofthemoreliquidnamesarecorepositionsinCollateralizedLoanObligations(CLOs),
whichareleveredpoolsofleveredbankloansusedtodisperseriskandgeneratesafe
returnsfromnotsosafeassets(weseenthismoviebefore,haventwe?).Webelievethatthe
ratingagencieswilldowngradeasmuchas40%ofallnoninvestmentgradecreditstoCCC
status.Thispointisextremelyimportant.Suchadowngradewouldtriggerafailureofover
collateralizationtestswhicharekeycovenantsinvirtuallyallCLOsandpotentiallytriggerEvents
ofDefaultinmanyofthesepools.Theunintendedanddangerousconsequenceofthese
defaultswouldbeanevaporationoftheCLObidfromthemarketaccompaniedbyaglutof
supply,thusdrivingdowntheprice.
TherearevirtuallynoreasonablypricedDIPlenders(dependingonwhosesideyouareon),
whichisforcingexistingloanstobeimpairedbeyondhistoricnorms(seetheLyondelldiscussion
below).
Mostmarginalborrowerscontinuetoplaychickenwiththeirlenders,andmanyagentbanks
(leadlendersinasyndicationprocess)aresimplypuntingthelossesdowntheroadforabetter
day,whichfurtherweakensthecollateral.
ThepostureinWashingtonistosaveorcreatefourmillionjobs.Consequently,wethinkmost
bankruptcyjudgeswillbeoverlysympathetictoborrowersandpushforgoingconcernsrather
thanliquidations(whichcouldactuallymakemoresenseincertainsituations).
Thesumofthepartsanalysiscommonlyusedinliquidationscenariostendtobeoverly
optimisticwithregardtocurrentbankdebtpricing.Withnocreditavailabletofinancethese
businessesasgoingconcernsoutofbankruptcy,thebankdebtpricemustultimatelyreflect
whata100%equitypurchaserwouldbewillingtopayanumbermuchlowerthanhistorical
norms(seeTribunediscussionbelow).Thereturnsrequiredbyinvestorswillonlycontinueto
increaseinthemediumterm.
ThetypicalCLOcanonlyholddefaultedcollateralforaperiodof2to3years.Unfortunately,we
believethisissimplynotenoughtimefortheeconomytofinditswayoutoftheproverbial
woods,andCLOswillbeforcedtosellilliquidreorganizedequityintoachallengingmarket.

Belowwediscusstworecentbankruptcycasesthatillustratethecurrentdangersofthebankdebt
market.

14
HaymanAdvisors,L.P.2009

LyondellFrom$21BilliontoBankruptin385Days

LyondellChemicalCompany,amanufacturerofintermediatechemicals,wasacquiredbyBasellAFS.C.A.
onDecember20,2007,for$20.9billionincludingassumeddebt.Thebulkofthepurchasepricewas
financedwiththecombinationof$9.1billioninsyndicatedbankloans,a$7.9billionloanfromBasellAF
S.C.A.,and$800millionofassumedoutstandingunsecuredbonds.Thisimplies85%debt/capital,with
bankloansmakingupnearly44%ofthetotalcapstructure.During2008,Lyondellsoperationssuffered
withtheeconomicdownturn(thedamage,ofcourse,wasamplifiedbyexcessiveleverage)culminating
inbankruptcyfilingonJanuary8,2009.Thinkaboutthatforamoment:ittookonlyayearfora$21
billionleveragedacquisitiontoproceedfrompurchasetobankruptcy.Overthesametimeperiod,the
bidpricefortheLyondellsyndicatedbankloansdeclined57%from$1.00to$0.43.Lyondellsweakcash
flowoutlookrequiredsignificantDIPfinancingtofacilitatetherestructuringprocess.Thetightcapital
marketconditionsforcedLyondelltoacceptanonerousrollupDIPstructure(LIBOR+1000witha3%
LIBORflooraMINIMUM13%floatingrate)thatwilltransferasubstantialportionoftheeconomics
fromprepetitioncreditors(prebankruptcylenders)totheDIPlenders.Thisputstheprebankruptcy
banklendersinaveryunfavorablepositionunderarollupDIP,originallendersmustthrowgood
moneyafterbadbyputtingadditionalcapitalintothenewDIPfacilitytoprotecttheiroriginalbadloan.
Accordingly,tradingintheseniorsecuredbankloansbifurcatedintotwoclasses:(i)Stub,where
originallendersdidnotagreetoreup;and(ii)Rollup,whereoriginallendersthrewgoodmoneyafter
bad,desperatelyclawingforanenhancedrecovery.AsofFebruary23,2009,thebidpricesforthe
stubandrollupbankloansare$0.245and$0.570,respectively.Baseduponourexperience,most
WallStreetfirmsassume60%recoveryratestobethenorm.

TribuneBewaretheAllureofTrophyAssets

TribuneCompanyisamediaconglomerateconsistingofnewspapers,televisionstations,andownership
interestsintheChicagoCubs,WrigleyField,SportsNet,andTheFoodNetwork.InDecember2007,Sam
ZellacquiredTribuneCompanyina$14billionleveragedtransactionfinancedemploying$8.7billionof
seniorsecuredbankloans,$1.6billioninunsecuredbridgeloans,andtheassumptionofunsecured
outstandingbonds.TribuneCompanyintendedtoquicklyrepaydebtwithfreecashflowandproceeds
fromanassetsaleprogram;however,thecompanyfailedtodeliveronitscommitmentsasadvertising
revenuesandthecapitalmarketsevaporatedthroughout2008.InDecember2008,Tribunewasunable
tomeetadebtpaymentandwasforcedtoseekbankruptcyprotection.Overthistimeperiod,theprice
forTribunebankdebtsteadilydeclinedfrom$0.92inApril2008to$0.56inMay2008to$0.42in
December2008to$0.26today.Investorsinthebankloanswereenticedallthewaydownbythe
supposedbreakupvalueofcertaintrophyassets.Unfortunatelyforthoseinvestors,themarketvalue
forsuchassetsisshrivelingduetopotentialbuyersinabilitytosecurefinancing,aswellasdeteriorating
assetqualityandcashflows.Inflatedofferprices,asinMarkCubansofferfortheChicagoCubsand
ScrippsofferfortheFoodNetwork,quicklyunraveledasinvestorsrealizedthatpricesforevenhigh
qualityassetsareunderpressureanddealsareincreasinglydifficulttoclose.

Webelievethatongoingdeteriorationintheeconomicandcapitalmarketfundamentalswilldrive
furtherreductionsinassetvaluesaswellasdelaytherealizationofrecoveriesfromthoseassetsales.
Whilesomebuyersofbankdebtwillarguethattheyaregettingpaidtowait(atLIBOR+250,theyare
notgettingpaidmuch),webelievethatwaitingpatientlywithoutputtingcapitalatundueriskisthe
prudentstrategytogeneratemoreattractiveriskadjustedreturns.

15
HaymanAdvisors,L.P.2009

U.S.MortgagesNotQuiteTimeYet

ManyinvestorshavedecidedthatnowisthetimetobuyU.S.mortgagewholeloansaswellasmortgage
securities.Whiletherewillbesignificantopportunityinthisspaceoneday,thetimehasnotquite
arrived.Therearelimitedexamplesofbondsthatwehavepurchasedintheportfoliotodate,butthe
circumstancessurroundingtheirpurchaseweremoreofimmediatedistresssales,andthereforethe
pricewasrightregardlessofthetiming.Weuseadraconianmodelonourassumptionsfor
delinquencies,rollratesanddefaults.Peopletendtoforgetthatwhilemanyofthesepoolsare
geographicallydiverse,theytypicallyhaveaparticular"slice"ofthesocioeconomicspectrumthatisnot
reallydiverseineachpool.Historically,joblosseshavebeenthekeyproblemformortgagesand
mortgagebonds.Todate,themajorityofdelinquenciesanddefaultshavebeencausedbyfirmsthat
madeloanstopeoplethatcouldnotimmediatelymakeamortgagepayment.Whentheunemployment
ratehits1012%andthejoblessrateapproaches20%intheU.S.,mortgagepriceswilltakeanotherstep
lowerduetothenextwaveofdefaults.

MarktoMarketAccountingDon'tAsk...Don'tTellReally?!?!

Inthepastyear,therehasbeenalotofdebateaboutmarktomarketaccountinganditsaffectonthe
balancesheetsoffinancialinstitutions.Thecriticsofmarktomarket,whowantitsuspendedordone
awaywith,havestatedthatduetothecurrentcreditcrunchandlackofliquidityinthemarketplace,
certainassetsarebeingmarkedatartificiallylowvalues.Thisiscommonlyreferredtoastheliquidity
discount,orsaidanotherway,theportionofthetotaldiscountduetofactorsotherthanprojectedloss
ofprincipalduetocreditriskorthecurrentinterestrateenvironment.Thealternativetomarkto
marketiseithertoletcompanieskeepsecuritiesontheirbooksatcostorusemarktomodelwherethe
companiesthatownthesecuritiesusemanagementsbestestimatesonfuturecashflowstodetermine
thevalueofthesecurities.Trytonameonemanagementteamtodatethathasoverestimatedlosses.

Criticsofmarktomarketseemtooverlookthatthemarketpricesusedtodeterminefairvaluereflect
whereanactualbuyerandsellerhaveagreedtotransactinanorderlyfashion.TheSECandtheFASB
haveissuedguidancestatingthatdistressedassetsalesandilliquidorirrationalmarketsdonothaveto
beusedtodeterminethefairvalueofacompanysassets.Incaseswherealiquidmarketdoesnot
exist,thereisalreadyabuiltinmechanismforcompaniestovaluetheirassetsbasedonsomedegreeof
judgment,butusingasmuchmarketdataaspossibleandwithdisclosureonmanagementsestimates.
Ifanything,weshouldbepushingforamorerobustversionofmarktomarketthateliminatesthe
abilityofcompaniestoshiftassetsthattheydontwishtomarktomarketintotheilliquidbuckets,or
socalledLevel2and3assets.Level2and3assetsarethoseinwhichcompanieshavetheabilityto
valueassetsatlevelsotherthanmarketbyusingclearlypricesorquotedpricesforsimilarassets.Take
LehmanBrothersforexample,asofMay31,2008,theyhadtotalassetsof$639.4billion,totalliabilities
of$613.2billionandtotalstockholdersequity(includingpreferredstock)equalto$26.3billion.
LehmanstotalLevel2and3assetsasofthissamedatewereacombined$203.2billion.Itseemsvery
unlikelythattheLevel2and3assetswerereallyworthanywherenear$203.2billiononMay31st,given
thatapproximately3monthslaternotonlydidalloftheequityvalue($26.3billion)getwipedout,but
theseniornoteholderslost$0.91375aswell.Justimaginehowmuchlargertheproblemwouldbeif
assetsheldonthebooksatmarketvaluewereartificiallyinflatedinvalueinthesamemannerasLevel2
and3assets.

16
HaymanAdvisors,L.P.2009

Ifyoulookatreasonswhythemarketispricingmostassetsbelowpar,itisnotduetoliquidityorthe
creditcrunch.Thesimplefactremainsthatuntilthebroadermacroeconomicconditionsimprove,credit
lossesanddefaultswillcontinuetoincrease.Lookingbackonthepasttwoyearsworthoftradingdata,
themarkethasnotbeenpunitiveenoughinitsassumptions.Itwasnotlongagothatthesamepeople
blamingmarktomarketaccountingfornotreflectingtrueassetvaluewouldhavesaiditwasimpossible
foraAAAratedbondtohaveprincipallosseventhoughmanyweretradingatsteepdiscounts.Inthe
markettoday,thatoutcomeiswidelydeterminedtobeinevitable.Whilewearecertainthatmarkto
marketaccountingisnotperfectanditwillovervaluesomeassetsandundervalueothers,itisveryclear
thatthemarkethasbeenaheadofthecurvethroughthiscycleandcontinuestobethebestestimateof
ultimatevalue.MoodysclaimsthatnoneoftheirAAAratedbondshaveevertakenacapitalloss.What
theyfailtomentionisthattheydowngradeAAAsecuritiestolowerratingsbeforecapitallossesoccur.

ItisworthpointingoutthatwemarktheMasterFundsinvestmentstomarketeveryday,andwereport
performancebasedonthosemarkstoyou,ourlimitedpartners,everymonth.Wedonotmanipulate
thepricingofourinvestments,nordowehaveanydesiretodoso.Wouldyouinvestwithusifour
returnswerebasedonourownassumptionsofwhatwethoughtsomethingshouldbeworthrather
thanwherethepositionscouldbesoldtoawillingbuyer?

CreditDefaultSwapsTheyareNOTtheVillainintheRoom

WithallofthediscussionlatelyinregardtoCDS,Ithinkitistimetoofferaneasysolutiontofixingthe
problemforgood.Weareanactiveparticipantinthismarketplaceandwouldliketoshareourthoughts
withyouonthesubject.CDSisanenigmatictermusedtobaffleeventhosewhoinvestwiththemin
theirportfolios.Whenanyoneusesthetermswap,Iamsureitturnsoff99%ofthepeoplereadingor
listening.CreditDefaultSwapsaresimplybondoptions.Thereisareferenceobligation(thebond),a
finitetimeframe,andconsiderationexchangedbetweenparties(wellsometimes...andthisisthe
problemthatneedsfixing).Wedon'thearabouttheequitiesoptionmarketplaceasbeingdisruptive
orsystemic.Wedon'thearaboutthefuturesoptionsmarketplacecausingdepressionsormarket
meltdowns.Whydoyouthinkthatis?TheanswerissoeasythatIcan'tbelieveitisnottalkedabout
more.TheplayersintheCDSmarketplaceplaywithdifferentrules.Ifyouareasellerofopenended
risk(i.e.thepersonsellingtheinsuranceagainstdefault),youhavebeenabletodosowithZERO
INTITIALCOLLATERALREQUIREDifyouwereadealerorsayahugeinsurancecompanywithapristine
creditrating(AIG).So,thereturnsandtheleveragewereinfinitetotheseplayersaslongasthecontract
nevermovedagainstthem.Theywouldsimplycollectpremiumswithouteverpostingcollateralor
puttingmoneyupfortherisktheyweretaking.TheWallStreetfirmslikeBearStearns,Lehman,and
AIGalltookcompleteadvantageofthisandleveredthemselvesmorethanever.Ifthereweretobea
ruleinthefuturethatREQUIRINGALLPARTICIPANTStoplaybythesamecollateralrules,themarket
wouldshrinksignificantlyandtherewillnotlikelybeanothersystemicissuesurroundingthem.Ifall
playershadtoplaybythesamerules,thismarketplacewouldhaveNEVERgrowntothesizeitistoday,
andAIGwouldn'thavecosttheU.S.Taxpayercloseto$200BILLIONsofar.ThisisanEASYFIX.Weare
alsoproponentsofmakingthe88%ofCDScontractsthatarestandardizedbeexchangetradedwith
priceslistedonthescreen.ThelinkbelowleadstotheDTCCssummaryofCDSmarketcomposition:
http://www.dtcc.com/products/consent.php?id=tiwd/products/derivserv/data_table_i.php

17
HaymanAdvisors,L.P.2009

IamsureIwillupsetWallStreetfirmsandinsurancecompaniesandalloftheotherparticipantsthat
liketheoldsystemofpostingnocollateralandhavingthemarketplaceopaquesotheycouldfleecethe
unwaryparticipants.ItistimetohaveanAdultSkateonlyfromnowon.

EventheSageofOmaha,WarrenBuffet,wroteinhis2008lettertohisshareholders:

Atyearendwehadwritten$4billionofcontractscovering42corporations,forwhichwe
receiveannualpremiumsof$93million.Thisistheonlyderivativesbusinesswewrite
thathasanycounterpartyrisk;thepartythatbuysthecontractfromusmustbegood
forthequarterlypremiumsitwilloweusoverthefiveyears.Weareunlikelytoexpand
thisbusinesstoanyextentbecausemostbuyersofthisprotectionnowinsistthatthe
sellerpostcollateral,andwewillnotenterintosuchanarrangement.(emphasis
added).

ToOurInvestorsandFriends:

ManyofyouareawareoftheJointStatementreleasedonFebruary25th(awhole4daysand11%agoin
thefinancials)bytheFDIC,Treasury,FederalReserve,OCC,andtheOTS.Init,theyassuredusthat
currently,themajorU.S.bankinginstitutionshavecapitalinexcessoftheamountsrequiredtobe
consideredwellcapitalized.Iguessweareallgoodagain.Whatisallofthistalkabout
nationalizationifthebanksarewellcapitalized?WhydidtheFederalReserveandCongressagreeto
backstop,injectorguaranteecloseto$9trillionofsupportiftheyareallwellcapitalized?

Considerthis:iftheTier1riskbasedcapitalrequirementsforU.S.banksis6%,thenthedefacto
amountofbalancesheetleverageisapproximately16x,atbest.Ifyouwereinvestingusing16x
leveragecominginto20072009,howoutofbusinessareyou?TheanswerisCOMPLETELY.The
majorityofourbankingsystemisINSOLVENT,andthatistheproblem.WiththerepealoftheGlass
SteagallAct(whichwasoriginallyputintoplacein1933)in1999,depositoryinstitutionsweregiventhe
abilitytospeculateandinfinitelylevertheirbalancesheetsthroughderivatives.Congressallowedmajor
U.S.moneycenterbankstogettoolevered.WENEEDTOSEPARATECOMMERCIALBANKSFROM
INVESTMENTBANKS.Inthefuture,ourdepositoryinstitutionsshouldnotbeabletospeculateinthe
uberleveredderivativesmarkets.Theyshouldbegoodoldfashionedbanks(backtothebasics).When,
andifthateverhappens,thenextquestionshouldbe:howmuchleverageisprudentatthesebanks?Is
16xleverageprudent?Wethinkthe36pagelistof679nowgovernmentownedcompanies(e.g.banks)
suggestsotherwise.

OnceyouhaveadeepunderstandingofhowtheU.S.andworldbankingsystemswork,itgivesyoua
senseofhowbadthingsreallyareandmaybecome.Sofar,theFederalReserveandtheTreasury's
bestandbrightesthavedecidedthatthebestwaytogetthroughthisistoaddmoreleveragetoan
overleveredeconomy.TheTALFprogramisattemptingtorestartthesecuritizationmarket.Waita
minute!Didwenotjustgetherethroughthedisintermediationofrisk?Shouldn'tinstitutionsthatare
actuallymakingloansberequiredtokeepsomeorallofthoseloansontheirbalancesheets?Itlooks
likewearetryingtoheadrightbacktowherewejustcamefrom.Theproblemisthattheyhavealready
takenallofthesuckers'moneyinthesecuritizationmarketplace.Releveringwillnotwork,inmy
opinion.Weneedtolettheweakfailandthestrongsurvive.Bernankeneedstotakesomecuesfrom
VonMisesandtheAustrians.

18
HaymanAdvisors,L.P.2009

Foryourwealth,youmustthinkabouttheenormityofthisproblemaroundtheworld,andwhatthe
likelygovernmentalresponseswillbe.Ibelievetheyonlyhavetwopathstowalkdowneventually.One
istoprintmoneyinanattempttopaperovertheirlosses(pardonthepun).Thispathcanonlyleadto
massivedebasementofthefiatcurrencyinourwalletsandbankaccounts,whichisakintothem
stealingitfromsavers.Thesecondpathistomoveallofthebadprivateassetstothegovernmentor
publicbalancesheetsandthendefaultontheirsovereigndebt.Theworldneedsadooverandthis
wouldbethecleanestwaytorebuildingtheworld'sfinancialsystem.AsmuchasIwouldliketothink
thereisanotherpathtosalvationthatdoesnotincludeenormouspain,thereisjustnootherwaywhen
youlookatallofthenumbers.

Assomeofyouareaware,theHaymanfranchiseexpandedin2008tobecomprehensivelypositionedto
protectandcreatewealthduringtheglobaleconomicmeltdown.Specifically,wecreatedamunicipal
bondfundasarelativelysafeplacetostorecapitalandearnahealthysingledigit,taxfreereturn.We
alsocreatedaresidentialrealestateprivateequityfundfocusingondistressedinvestmentsandDIP
financings.Therewillbeatimetoownrealestate,andwebelievethattherewillbephenomenal
opportunitiestobuyincheaplyasthemarketcontinuestobefloodedwithoverleveredanddistressed
residentialprojects.Wearecarefullyandpatientlycombingthenationalrealestatemarketsoweare
preparedtoactwhentheseopportunitiesarise.Thefundtargetsreturnsinthehighteenstolow
twentieswithlittletonoleverage.Todate,wehaveexecutedoneDIPfinancingandbidonover$1
billionworthofdistressedtransactions.Giventhedirectioninwhichtheglobaleconomyisheadedand
theloomingworldwidefiatcurrencydebasement,weareconfidentthatatsomepoint,realestatewill
provetobeaveryvaluableassetclass.

Forthoseofyouthathavenotknownmeformorethanacoupleofyears,throughoutmylifeIhave
beenaveryoptimisticperson.Idonothaveanyneedor,forthatmatter,desiretoremainnegative
abouttheworld.Asafiduciary,ImustgatherandassimilatethedatathatIseek.Imustthen(withmy
team)formulateanopinionwithregardtothatdataaswellashundredsofothersocial,politicaland
gametheoryinputsinordertodevelopourthesistofirstprotectandsecond,earngoodriskbased
returnsonyourcapital.Therewillbeatimetogetbullish(myguessismanyyearsfromnow),andat
ourinvestordinneronApril1st,Iwilldescribeonesuchbullishinvestmentwewillbemakingin2009.

Regards,

J.KyleBass

ManagingPartner
HaymanAdvisors,L.P.

*This letter contains information about prior investments made by Hayman Capital Master Fund, LP (the Fund).
Prior investment returns are not necessarily indicative of future success. It should not be assumed that investment
recommendations made in the future will be profitable or will equal the performance reported herein. Neither
Hayman Advisors, L.P. (the Advisor), the Fund, nor any of their affiliates guarantee the performance of any investment
or any particular rate of return. Unaudited figures are based on estimates and may be subject to material change.
The information contained herein is current as of the date hereof, but may become outdated or subsequently may
change.

19
HaymanAdvisors,L.P.2009

Net results reflect the deduction of operational expenses, management fees and incentive allocations (estimated when
applicable), but do not include side pocket investments (if any). Net results reflect investor returns for an investment
made at the Funds inception without any subsequent contributions or withdrawals. Actual investor results may vary
due to, among other things, the timing of contributions or withdrawals and feeder level expenses. Performance
information for 2006 is from the Fund's inception on February 14, 2006 through December 31, 2006.

The information set forth herein is being furnished on a confidential basis to the recipient and does not constitute an
offer, solicitation or recommendation to sell or an offer to buy any securities, investment products or investment
advisory services. Such an offer may only be made to eligible investors by means of delivery of a confidential private
placement memorandum or other similar materials that contain a description of material terms relating to such
investment. The information and opinions expressed herein are provided for informational purposes only. An
investment in the Hayman Fundsis speculative due to a variety of risks and considerations as detailed in the
confidential private placement memorandum of the particular fund and this letter is qualified in its entirety by the more
complete information contained therein and in the related subscription materials. Nothing contained herein
constitutes financial, legal, tax, or other advice. This may not be reproduced, distributed or used for any other
purpose. Reproduction and distribution of this letter may violate federal or state securities laws.

20
HaymanAdvisors,L.P.2009

UnitedStatesFederalGovernmentBalanceSheet(NotSeasonallyAdjusted)
Source:FederalReserveLevelsReport

TotalFinancialAssets

2008
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Q3
$445.5 $560.4 $513.7 $607.2 $599.0 $629.7 $609.5 $614.6 $624.9 $659.0 $1,009.8

Gold,SDRsandOfficialForeignExchange
CheckableDepositsandCurrency
TimeandSavingsDeposits

$51.0 $44.4 $41.0 $43.1 $51.1 $55.1 $54.5 $35.3 $34.5 $36.3 $44.6
$23.2 $87.9 $24.3 $66.9 $47.5 $54.1 $21.9 $36.8 $32.9 $56.5 $365.1
$4.7 $5.4 $6.3 $10.5 $27.6 $2.4 $2.4 $1.4 $1.7 $2.8 $2.9

10.3%
2.3%
15.8%

10.4%
30.6%
27.5%

4.4%
49.5%
4.1%

31.6%
1103.6%
4.8%

CreditMarketInstruments
AgencyandGSEBackedSecurities
OtherLoans&Advances
Mortgages
ConsumerCredit(StudentLoans)

$221.6
$
$139.3
$44.9
$37.4

$298.5
$
$107.0
$84.6
$106.9

10.9%

0.1%

1.8%

5.1%

3.8%
30.9%
33.8%

3.0%
1.4%
7.1%

2.0%
2.9%
5.6%

1.5%
1.9%
11.7%

TradeReceivables
TaxesReceivable
MiscellaneousAssets

$22.3 $22.9 $28.1 $35.5 $32.2 $51.3 $61.8 $70.9 $71.3 $71.5 $71.4
$21.4 $38.5 $42.4 $79.8 $64.3 $91.4 $90.7 $94.3 $101.5 $101.5 $105.0
$101.3 $100.3 $98.9 $100.3 $100.3 $101.7 $102.3 $100.9 $101.8 $102.8 $122.3

12.3%
40.8%
1.2%

22.2%
29.2%
0.9%

7.2%
3.0%
4.0%

0.2%
4.6%
26.1%

TotalLiabilities

$4,529.4 $4,503.8 $4,264.7 $4,294.0 $4,583.9 $5,096.6 $5,533.4 $5,919.1 $6,167.9 $6,567.4 $7,252.7

3.0%

6.1%

7.7%

14.1%

SDRCertificates
TreasuryCurrency

$9.2 $6.2 $2.2 $2.2 $2.2 $2.2 $2.2 $2.2 $2.2 $2.2 $2.2
$19.9 $20.9 $23.2 $24.5 $25.5 $26.0 $26.7 $27.5 $28.1 $28.7 $28.1

51.1%
8.0%

0.0%
3.9%

0.0%
1.6%

0.0%
2.8%

CreditMarketInstruments
SavingsBonds
OtherTreasurySecurities
BudgetAgencySecurities
MultiFamilyResidentialMortgages

$3,752.1
$186.6
$3,537.0
$28.5
$

$3,680.9
$186.4
$3,466.2
$28.3
$

$3,385.1
$184.8
$3,173.0
$27.3
$

$3,379.5
$190.3
$3,162.4
$26.8
$

$3,637.1
$194.9
$3,414.9
$27.3
$

$4,033.1
$203.8
$3,804.4
$24.9
$

$4,395.0
$204.4
$4,166.3
$24.3
$

$4,701.8
$205.1
$4,472.9
$23.8
$

$4,885.3
$202.4
$4,659.4
$23.5
$

$5,122.3
$196.4
$4,902.8
$23.1
$

$5,800.7
$194.2
$5,583.4
$23.1
$

5.0%
0.5%
5.3%
2.1%

6.0%
3.3%
6.2%
3.0%

8.0%
1.0%
8.4%
1.6%

18.0%
1.5%
18.9%
0.0%

TradePayables
InsuranceReserves
MiscellaneousLiabilities
NonmarketableSecuritiesheldbyPensionPlans
Other

$65.0
$33.6
$649.6
$642.9
$6.7

$70.2
$35.0
$690.6
$684.0
$6.6

$74.6
$36.4
$743.2
$736.8
$6.4

$78.0
$37.8
$772.0
$765.8
$6.2

$78.8
$39.4
$800.9
$790.3
$10.6

$151.2
$40.5
$843.6
$815.0
$28.6

$166.3
$41.6
$901.6
$855.9
$45.7

$198.8
$42.7
$946.1
$882.9
$63.2

$205.7
$44.2
$1,002.4
$918.7
$83.7

$288.4
$45.4
$1,080.4
$952.0
$128.4

$248.0
$45.7
$1,128.0
$962.3
$165.7

7.1%
4.1%
7.0%
7.1%
2.3%

26.6%
3.6%
4.3%
3.4%
64.7%

11.0%
2.6%
6.3%
3.6%
44.8%

18.2%
0.9%
5.9%
1.4%
40.5%

CapitalDeficit

$4,083.9 $3,943.4 $3,751.0 $3,686.8 $3,984.9 $4,466.9 $4,923.9 $5,304.5 $5,543.0 $5,908.4 $6,242.9

4.2%

6.0%

7.3%

7.6%

$261.0
$
$132.4
$77.7
$50.9

$272.7
$
$128.8
$76.9
$67.0

$271.1
$
$122.8
$75.8
$72.5

$276.0
$
$119.2
$76.3
$80.5

$273.7
$
$117.5
$73.8
$82.4

$275.9
$
$114.4
$75.4
$86.1

$275.0
$
$107.4
$77.8
$89.8

$281.2
$
$108.0
$81.5
$91.7

$287.6
$
$105.8
$83.4
$98.4

9800CAGR
0003CAGR
0308CAGR 0708Growth
7.4%
7.0%
10.5%
76.7%

UnitedStatesFederalGovernmentBalanceSheet(NotSeasonallyAdjusted)
Source:FederalReserveLevelsReport
2008
Q3
9800Change 0003Change 0308Change 0708Change
100.0%
0.0%
0.0%
0.0%
0.0%

1998
100.0%

1999
100.0%

2000
100.0%

2001
100.0%

2002
100.0%

2003
100.0%

2004
100.0%

2005
100.0%

2006
100.0%

2007
100.0%

Gold,SDRsandOfficialForeignExchange
CheckableDepositsandCurrency
TimeandSavingsDeposits

11.4%
5.2%
1.1%

7.9%
15.7%
1.0%

8.0%
4.7%
1.2%

7.1%
11.0%
1.7%

8.5%
7.9%
4.6%

8.8%
8.6%
0.4%

8.9%
3.6%
0.4%

5.7%
6.0%
0.2%

5.5%
5.3%
0.3%

5.5%
8.6%
0.4%

4.4%
36.2%
0.3%

3.5%
0.5%
0.2%

0.8%
3.9%
0.8%

4.3%
27.6%
0.1%

1.1%
27.6%
0.1%

CreditMarketInstruments
AgencyandGSEBackedSecurities
OtherLoans&Advances
Mortgages
ConsumerCredit(StudentLoans)

49.7%
0.0%
31.3%
10.1%
8.4%

46.6%
0.0%
23.6%
13.9%
9.1%

53.1%
0.0%
25.1%
15.0%
13.0%

44.6%
0.0%
20.2%
12.5%
11.9%

46.1%
0.0%
19.9%
12.7%
13.4%

43.5%
0.0%
18.7%
11.7%
13.1%

45.3%
0.0%
18.8%
12.4%
14.1%

44.7%
0.0%
17.5%
12.7%
14.6%

45.0%
0.0%
17.3%
13.0%
14.7%

43.6%
0.0%
16.1%
12.7%
14.9%

29.6%
0.0%
10.6%
8.4%
10.6%

3.3%
0.0%
6.2%
4.9%
4.6%

9.6%
0.0%
6.4%
3.2%
0.0%

13.9%
0.0%
8.1%
3.3%
2.5%

14.1%
0.0%
5.5%
4.3%
4.3%

TradeReceivables
TaxesReceivable
MiscellaneousAssets

5.0%
4.8%
22.7%

4.1%
6.9%
17.9%

5.5%
8.3%
19.3%

5.8%
13.1%
16.5%

5.4%
10.7%
16.7%

8.1%
14.5%
16.2%

10.1%
14.9%
16.8%

11.5%
15.3%
16.4%

11.4%
16.2%
16.3%

10.8%
15.4%
15.6%

7.1%
10.4%
12.1%

0.5%
3.5%
3.5%

2.7%
6.3%
3.1%

1.1%
4.1%
4.0%

3.8%
5.0%
3.5%

%ofTotalLiabilities

100.0%

100.0%

100.0%

100.0%

100.0%

100.0%

100.0%

100.0%

100.0%

100.0%

100.0%

0.0%

0.0%

0.0%

0.0%

0.2%
0.4%

0.1%
0.5%

0.1%
0.5%

0.1%
0.6%

0.0%
0.6%

0.0%
0.5%

0.0%
0.5%

0.0%
0.5%

0.0%
0.5%

0.0%
0.4%

0.0%
0.4%

0.2%
0.1%

0.0%
0.0%

0.0%
0.1%

0.0%
0.0%

CreditMarketInstruments
SavingsBonds
OtherTreasurySecurities
BudgetAgencySecurities
MultiFamilyResidentialMortgages

82.8%
4.1%
78.1%
0.6%
0.0%

81.7%
4.1%
77.0%
0.6%
0.0%

79.4%
4.3%
74.4%
0.6%
0.0%

78.7%
4.4%
73.6%
0.6%
0.0%

79.3%
4.3%
74.5%
0.6%
0.0%

79.1%
4.0%
74.6%
0.5%
0.0%

79.4%
3.7%
75.3%
0.4%
0.0%

79.4%
3.5%
75.6%
0.4%
0.0%

79.2%
3.3%
75.5%
0.4%
0.0%

78.0%
3.0%
74.7%
0.4%
0.0%

80.0%
2.7%
77.0%
0.3%
0.0%

3.5%
0.2%
3.7%
0.0%
0.0%

0.2%
0.3%
0.2%
0.2%
0.0%

0.8%
1.3%
2.3%
0.2%
0.0%

2.0%
0.3%
2.3%
0.0%
0.0%

TradePayables
InsuranceReserves
MiscellaneousLiabilities
NonmarketableSecuritiesheldbyPensionPlans
Other

1.4%
0.7%
14.3%
14.2%
0.1%

1.6%
0.8%
15.3%
15.2%
0.1%

1.7%
0.9%
17.4%
17.3%
0.2%

1.8%
0.9%
18.0%
17.8%
0.1%

1.7%
0.9%
17.5%
17.2%
0.2%

3.0%
0.8%
16.6%
16.0%
0.6%

3.0%
0.8%
16.3%
15.5%
0.8%

3.4%
0.7%
16.0%
14.9%
1.1%

3.3%
0.7%
16.3%
14.9%
1.4%

4.4%
0.7%
16.5%
14.5%
2.0%

3.4%
0.6%
15.6%
13.3%
2.3%

0.3%
0.1%
3.1%
3.1%
0.0%

1.2%
0.1%
0.9%
1.3%
0.4%

0.5%
0.2%
1.0%
2.7%
1.7%

1.0%
0.1%
0.9%
1.2%
0.3%

%ofTotalFinancialAssets

SDRCertificates
TreasuryCurrency

UnitedStatesFederalGovernmentIncomeStatementandChangeinAccounts(Nominal)
Source:FederalReserveFlowofFundsReport
1998
1999
2000

2001

2002

2003

2004

2005

2006

2007

2008
Q3

9800CAGR

PersonalCurrentTaxes
TaxesonProductionandImports
TaxesonCorporateIncome
TaxesonROW
ContributionsforGovt.SocialInsurance
IncomeReceiptsonAssets
CurrentTransferReceipts
CurrentSurplusofGovernmentEnt.
CurrentReceipts,NIPABasis

$825.8
$81.1
$204.3
$5.7
$613.8
$21.5
$21.6
$0.1
$1,773.9

$893.0
$83.9
$212.9
$5.9
$651.7
$21.5
$22.7
$(0.4)
$1,891.2

$999.1
$87.8
$219.4
$7.3
$691.7
$25.2
$25.7
$(2.3)
$2,053.9

$994.5
$85.8
$164.7
$7.1
$717.5
$24.9
$27.1
$(5.5)
$2,016.1

$830.5
$87.3
$150.5
$7.3
$734.3
$20.2
$24.8
$(1.6)
$1,853.3

$774.5
$89.7
$197.8
$8.9
$758.9
$22.9
$25.0
$2.3
$1,880.0

$797.4
$94.6
$250.3
$10.0
$805.2
$23.8
$28.8
$(1.2)
$2,008.9

$930.7
$99.2
$341.0
$12.1
$850.0
$24.0
$15.0
$(5.0)
$2,267.0

$1,049.9
$98.0
$388.9
$13.4
$902.4
$25.7
$35.7
$(3.6)
$2,510.4

$1,167.3
$97.7
$365.4
$14.0
$942.3
$29.2
$37.5
$(2.2)
$2,651.2

$1,141.6
$95.2
$315.9
$14.9
$974.8
$32.4
$22.4
$(0.1)
$2,597.1

10.0%
4.0%
3.6%
13.2%
6.2%
8.3%
9.1%

ConsumptionExpenditures
GovernmentSocialBenefits
OtherCurrentTransferPayments
InterestPayments
Subsidies
WageAccrualslessDisbursements
CurrentExpenditures,NIPABasis

$454.6
$719.2
$227.4
$298.9
$35.0
$
$1,735.1

$475.1
$738.0
$248.0
$282.7
$43.8
$
$1,787.6

$499.3
$772.5
$265.6
$283.3
$43.8
$
$1,864.5

$531.9
$841.4
$290.0
$258.6
$47.6
$
$1,969.5

$591.5
$919.6
$323.4
$229.1
$37.5
$
$2,101.1

$662.7
$966.5
$362.2
$212.9
$47.8
$
$2,252.1

$723.7
$1,015.3
$375.2
$221.0
$44.2
$
$2,379.4

$766.3
$1,081.6
$396.5
$255.4
$58.9
$
$2,558.7

$811.8
$1,180.4
$387.7
$282.3
$49.4
$
$2,711.6

$856.1
$1,254.2
$412.5
$312.6
$45.2
$
$2,880.6

$954.1
$1,376.2
$419.1
$342.6
$48.3
$
$3,140.3

NetFederalGovernmentSaving,NIPABasis
+ConsumptionofFixedCapital
InsuranceandPensionReserves
+NetCapitalTransfers
=GrossSavingandNetCapitalTransfers

0003CAGR

0308CAGR 0708Growth

7.6%

8.1%
0.7%
3.4%
6.8%
3.1%
3.1%
0.9%
200.0%
2.9%

8.1%
1.2%
9.8%
10.9%
5.1%
7.2%
2.2%
153.4%
6.7%

2.2%
2.6%
13.5%
6.4%
3.4%
11.0%
40.3%
95.5%
2.0%

4.8%
3.6%
8.1%
2.6%
11.9%

9.9%
7.8%
10.9%
9.1%
3.0%

7.6%
7.3%
3.0%
10.0%
0.2%

11.4%
9.7%
1.6%
9.6%
6.9%

3.7%

6.5%

6.9%

9.0%

$38.8 $103.6 $189.4 $46.6 $(247.8) $(372.1) $(370.5) $(291.7) $(201.2) $(229.4) $(543.2)

120.9%

225.2%

7.9%

136.8%

$82.8
$4.4
$(3.6)
$113.6

2.6%
36.0%
50.0%
53.2%

1.2%
169.3%
70.9%
206.4%

5.7%
23.2%
10.1%
8.7%

6.7%
1800.0%
16.8%
180.7%

$84.8
$3.8
$(7.4)
$177.2

$87.2
$1.8
$(8.1)
$266.7

$88.2
$3.3
$(12.9)
$118.6

$88.9
$(1.7)
$(23.1)
$(180.3)

$90.4
$(0.6)
$(40.4)
$(321.5)

$94.0
$
$(38.4)
$(314.9)

$99.1
$0.7
$(42.2)
$(235.5)

$105.6
$0.1
$(42.4)
$(138.1)

$111.8
$0.1
$(56.0)
$(173.7)

$119.3
$(1.7)
$(65.4)
$(487.6)

UnitedStatesFederalGovernmentIncomeStatementandChangeinAccounts(Nominal)
Source:FederalReserveFlowofFundsReport
2008
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Q3
9800CAGR
0003CAGR
0308CAGR 0708Growth
NetAcquisitionsofFinancialAssets
Gold,SDRsandOfficialForeignExchange
$6.0 $(7.1) $(0.6) $4.6 $3.4 $(1.8) $(3.1) $(14.4) $(2.7) $(0.4) $(1.3)
44.2%
6.3%
225.0%
CheckableDepositsandCurrency
$(16.7) $66.2 $(65.1) $41.1 $(17.1) $9.3 $(31.0) $12.2 $(2.7) $25.1 $1,257.1
97.4%
152.3%
166.8%
4908.4%
$1.3 $0.7 $1.0 $4.2 $17.1 $(25.2) $
$(1.0) $0.2 $1.2 $4.3
12.3%
393.2%
170.2%
258.3%
TimeandSavingsDeposits
CreditMarketInstruments
AgencyandGSEbackedSecurities
OtherLoans&Advances
Mortgages
ConsumerCredit(StudentLoans)

$11.6
$
$3.4
$(0.8)
$9.0

$6.4
$
$(7.1)
$(0.1)
$13.6

$11.6
$
$(3.6)
$(0.9)
$16.1

$6.0
$
$(6.0)
$(1.1)
$13.1

$4.8
$
$(3.7)
$0.5
$8.0

$(2.6)
$
$(2.0)
$(2.5)
$1.9

$2.3
$
$(3.0)
$1.6
$3.7

$(0.9)
$
$(7.0)
$2.4
$3.7

$6.2
$
$0.6
$3.7
$1.9

$6.4
$
$(2.2)
$1.9
$6.7

$13.0
$
$12.2
$(3.4)
$4.2

0.0%

160.7%

238.0%

103.1%

6.1%
33.7%

17.8%
40.6%
50.9%

243.6%
6.3%
17.2%

654.5%
278.9%
37.3%

TradeReceivables
TaxesReceivable
MiscellaneousAssets
NetAcquisitionsofFinancialAssets

$1.5
$(8.9)
$(3.5)
$(8.7)

$4.6
$1.6
$(0.9)
$71.5

$5.3
$(21.5)
$(1.4)
$(70.7)

$7.3
$(9.3)
$1.3
$55.2

$(3.3)
$(2.3)
$
$2.6

$19.1
$33.9
$1.4
$34.1

$10.5
$22.6
$0.6
$1.9

$9.1
$25.8
$(1.4)
$29.4

$0.4
$(13.4)
$1.0
$(11.0)

$0.2
$(29.4)
$1.0
$4.1

$3.5
$27.5
$73.5
$1,377.6

88.0%
55.4%
36.8%
185.1%

53.3%
216.4%
200.0%
178.4%

28.8%
4.1%
120.8%
109.5%

1650.0%
193.5%
7250.0%
33500.0%

NetIncreaseinLiabilities
SDRCertificates
TreasuryCurrency

$
$0.6

$(3.0) $(4.0) $
$1.0 $2.4 $1.3

$
$1.0

$
$0.6

$
$0.7

$
$0.8

$
$0.6

$
$0.7

$
$(1.2)

100.0%

100.0%
37.0%

214.9%

271.4%

$(52.6)
$0.1
$(54.7)
$2.0
$

$(71.2)
$(0.2)
$(70.8)
$(0.2)
$

$(295.9)
$(1.7)
$(293.2)
$(1.0)
$

$(5.6)
$5.6
$(10.7)
$(0.5)
$

$257.5
$4.5
$252.5
$0.5
$

$396.0
$8.9
$389.5
$(2.4)
$

$361.9
$0.6
$361.9
$(0.6)
$

$306.9
$0.7
$306.6
$(0.4)
$

$183.4
$(2.7)
$186.4
$(0.3)
$

$237.0
$(6.0)
$243.4
$(0.4)
$

$2,078.6
$(1.3)
$2,081.6
$(1.7)
$

210.2%
273.6%
209.9%
33.9%

39.3%
168.1%
39.8%
6.7%

777.0%
78.3%
755.2%
325.0%

TradePayables
InsuranceReserves
MiscellaneousLiabilities
NonmarketableSecurities
Other
NetIncreaseinLiabilities

$(8.0)
$1.3
$34.1
$41.2
$(7.1)
$(24.6)

$(0.4)
$1.4
$38.2
$41.1
$(2.9)
$(34.0)

$4.4
$1.4
$22.9
$20.9
$2.0
$(268.8)

$3.4
$1.4
$59.3
$67.1
$(7.8)
$59.8

$0.8
$1.6
$28.7
$24.5
$4.2
$289.6

$72.4
$1.1
$40.3
$24.7
$15.6
$510.4

$15.1
$1.1
$59.2
$40.9
$18.3
$438.0

$32.6
$1.1
$62.8
$40.0
$22.8
$404.2

$6.9
$1.5
$62.1
$35.8
$26.3
$254.5

$22.7
$1.2
$77.6
$33.3
$44.3
$339.2

$(20.5)
$(0.4)
$105.4
$55.3
$50.1
$2,161.9

230.6%

154.3%
7.7%
20.7%
5.7%
98.3%
223.8%

177.7%
181.7%
21.2%
17.5%
26.3%
33.5%

190.3%
133.3%
35.8%
66.1%
13.1%
537.4%

NetFinancialInvestment

$15.9 $105.5 $198.1 $(4.6) $(287.0) $(476.3) $(436.1) $(374.8) $(265.5) $(335.1) $(784.3)

253.0%

234.0%

10.5%

134.0%

FixedInvestment
NonproducedFinancialAssets
GrossInvestment

$75.8 $80.8 $79.5 $81.0 $88.1 $93.7 $101.9 $109.2 $120.3 $123.2 $143.6
$(0.5) $(13.3) $(1.3) $(6.6)
$(5.7) $(1.0) $(0.3) $(0.7) $0.3 $(0.2) $
$86.0 $185.3 $277.3 $75.7 $(198.6) $(382.8) $(334.2) $(266.1) $(158.5) $(213.2) $(647.3)

2.4%
77.1%
79.6%

5.6%
12.6%
211.3%

8.9%
101.2%
11.1%

16.6%
407.7%
203.6%

Discrepancy

$27.6 $(8.1) $(10.6) $42.9 $18.3 $61.4 $19.2 $30.6 $20.6 $39.6 $159.6

279.6%

21.1%

303.0%

ChangeinCashBalance

$(12.8) $59.4 $(55.1) $50.9 $(1.6) $(24.8) $(3.1) $4.6 $(5.5) $27.5 $1,260.1

23.4%

319.4%

4482.2%

CreditMarketInstruments
SavingsBonds
OtherTreasurySecurities
BudgetAgencySecurities
MultifamilyResidentialMortgages

137.2%
131.5%

3.8%
18.1%
28.8%

107.5%

UnitedStatesFederalGovernmentIncomeStatementandChangeinAccounts(Relative)
Source:FederalReserveFlowofFundsReport
2008
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Q3
9800Change 0003Change 0308Change 0708Change
(%ofReceipts)
PersonalCurrentTaxes
46.6%
47.2%
48.6%
49.3%
44.8%
41.2%
39.7%
41.1%
41.8%
44.0%
44.0%
2.1%
7.4%
2.8%
0.1%
TaxesonProductionandImports
4.6%
4.4%
4.3%
4.3%
4.7%
4.8%
4.7%
4.4%
3.9%
3.7%
3.7%
0.3%
0.5%
1.1%
0.0%
TaxesonCorporateIncome
11.5%
11.3%
10.7%
8.2%
8.1%
10.5%
12.5%
15.0%
15.5%
13.8%
12.2%
0.8%
0.2%
1.6%
1.6%
0.3%
0.3%
0.4%
0.4%
0.4%
0.5%
0.5%
0.5%
0.5%
0.5%
0.6%
0.0%
0.1%
0.1%
0.0%
TaxesonROW
ContributionsforGovt.SocialInsurance
34.6%
34.5%
33.7%
35.6%
39.6%
40.4%
40.1%
37.5%
35.9%
35.5%
37.5%
0.9%
6.7%
2.8%
2.0%
IncomeReceiptsonAssets
1.2%
1.1%
1.2%
1.2%
1.1%
1.2%
1.2%
1.1%
1.0%
1.1%
1.2%
0.0%
0.0%
0.0%
0.1%
CurrentTransferReceipts
1.2%
1.2%
1.3%
1.3%
1.3%
1.3%
1.4%
0.7%
1.4%
1.4%
0.9%
0.0%
0.1%
0.5%
0.6%
CurrentSurplusofGovernmentEnt.
0.0%
0.0%
0.1%
0.3%
0.1%
0.1%
0.1%
0.2%
0.1%
0.1%
0.0%
0.1%
0.2%
0.1%
0.1%
CurrentReceipts,NIPABasis
$1,773.9 $1,891.2 $2,053.9 $2,016.1 $1,853.3 $1,880.0 $2,008.9 $2,267.0 $2,510.4 $2,651.2 $2,597.1
(%ofExpenditures)
ConsumptionExpenditures
26.2%
26.6%
26.8%
27.0%
28.2%
29.4%
30.4%
29.9%
29.9%
29.7%
30.4%
0.6%
2.6%
1.0%
0.7%
GovernmentSocialBenefits
41.5%
41.3%
41.4%
42.7%
43.8%
42.9%
42.7%
42.3%
43.5%
43.5%
43.8%
0.0%
1.5%
0.9%
0.3%
OtherCurrentTransferPayments
13.1%
13.9%
14.2%
14.7%
15.4%
16.1%
15.8%
15.5%
14.3%
14.3%
13.3%
1.1%
1.8%
2.7%
1.0%
InterestPayments
17.2%
15.8%
15.2%
13.1%
10.9%
9.5%
9.3%
10.0%
10.4%
10.9%
10.9%
2.0%
5.7%
1.5%
0.1%
Subsidies
2.0%
2.5%
2.3%
2.4%
1.8%
2.1%
1.9%
2.3%
1.8%
1.6%
1.5%
0.3%
0.2%
0.6%
0.0%
WageAccrualslessDisbursements
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
CurrentExpenditures,NIPABasis
$1,735.1 $1,787.6 $1,864.5 $1,969.5 $2,101.1 $2,252.1 $2,379.4 $2,558.7 $2,711.6 $2,880.6 $3,140.3
NetFederalGovernmentSaving,NIPABasis

$38.8 $103.6 $189.4 $46.6 $(247.8) $(372.1) $(370.5) $(291.7) $(201.2) $(229.4) $(543.2)

+ConsumptionofFixedCapital
InsuranceandPensionReserves
+NetCapitalTransfers
=GrossSavingandNetCapitalTransfers

$82.8
$4.4
$(3.6)
$113.6

$84.8
$3.8
$(7.4)
$177.2

$87.2
$1.8
$(8.1)
$266.7

$88.2
$3.3
$(12.9)
$118.6

$88.9
$(1.7)
$(23.1)
$(180.3)

$90.4
$(0.6)
$(40.4)
$(321.5)

$94.0
$
$(38.4)
$(314.9)

$99.1
$0.7
$(42.2)
$(235.5)

$105.6
$0.1
$(42.4)
$(138.1)

$111.8
$0.1
$(56.0)
$(173.7)

$119.3
$(1.7)
$(65.4)
$(487.6)

UnitedStatesFederalGovernmentIncomeStatementandChangeinAccounts(Relative)
Source:FederalReserveFlowofFundsReport
1998
1999
2000
%ofNetAcquisitionsofFinancialAssets
Gold,SDRsandOfficialForeignExchange
69.0%
9.9%
0.8%
CheckableDepositsandCurrency
192.0%
92.6%
92.1%
TimeandSavingsDeposits
14.9%
1.0%
1.4%
CreditMarketInstruments
AgencyandGSEbackedSecurities
OtherLoans&Advances
Mortgages
ConsumerCredit(StudentLoans)
TradeReceivables
TaxesReceivable
MiscellaneousAssets
NetAcquisitionsofFinancialAssets
%ofNetIncreaseinLiabilities
SDRCertificates
TreasuryCurrency

2001

2002

2003

2004

2005

2006

2007

2008
Q3

9800Change 0003Change 0308Change 0708Change

8.3%
74.5%
7.6%

130.8%
657.7%
657.7%

5.3%
27.3%
73.9%

163.2%
1631.6%
0.0%

49.0%
41.5%
3.4%

24.5%
24.5%
1.8%

9.8%
612.2%
29.3%

0.1%
91.3%
0.3%

69.8%
99.9%
13.5%

6.1%
64.8%
72.5%

5.2%
64.0%
74.2%

9.7%
520.9%
29.0%

10.9%
0.0%
10.9%
2.0%
23.7%

184.6%
0.0%
142.3%
19.2%
307.7%

7.6%
0.0%
5.9%
7.3%
5.6%

121.1%
0.0%
157.9%
84.2%
194.7%

3.1%
0.0%
23.8%
8.2%
12.6%

56.4%
0.0%
5.5%
33.6%
17.3%

156.1%
0.0%
53.7%
46.3%
163.4%

0.9%
0.0%
0.9%
0.2%
0.3%

116.9%
0.0%
44.2%
7.9%
80.7%

8.8%
0.0%
11.0%
8.6%
28.3%

8.6%
0.0%
6.8%
7.1%
5.3%

155.2%
0.0%
54.5%
46.6%
163.1%

17.2%
6.4%
7.5%
13.2%
126.9%
56.0%
552.6%
31.0%
3.6%
4.9%
0.3%
102.3%
2.2%
30.4%
16.8%
88.5%
99.4%
1189.5%
87.8%
121.8%
717.1%
2.0%
40.2%
1.3%
2.0%
2.4%
0.0%
4.1%
31.6%
4.8%
9.1%
24.4%
5.3%
$(8.7) $71.5 $(70.7) $55.2 $2.6 $34.1 $1.9 $29.4 $(11.0) $4.1 $1,377.6

9.7%
71.9%
38.2%

63.5%
69.0%
2.1%

55.8%
97.4%
1.2%

4.6%
719.1%
19.1%

133.3%
0.0%
39.1%
9.2%
103.4%

9.0%
0.0%
9.9%
0.1%
19.0%

16.4%
0.0%
5.1%
1.3%
22.8%

0.0%
2.4%

8.8%
2.9%

1.5%
0.9%

0.0%
2.2%

0.0%
0.3%

0.0%
0.1%

0.0%
0.2%

0.0%
0.2%

0.0%
0.2%

0.0%
0.2%

0.0%
0.1%

1.5%
1.5%

1.5%
1.0%

0.0%
0.2%

0.0%
0.3%

213.8%
0.4%
222.4%
8.1%
0.0%

209.4%
0.6%
208.2%
0.6%
0.0%

110.1%
0.6%
109.1%
0.4%
0.0%

9.4%
9.4%
17.9%
0.8%
0.0%

88.9%
1.6%
87.2%
0.2%
0.0%

77.6%
1.7%
76.3%
0.5%
0.0%

82.6%
0.1%
82.6%
0.1%
0.0%

75.9%
0.2%
75.9%
0.1%
0.0%

72.1%
1.1%
73.2%
0.1%
0.0%

69.9%
1.8%
71.8%
0.1%
0.0%

96.1%
0.1%
96.3%
0.1%
0.0%

103.7%
1.0%
113.3%
8.5%
0.0%

32.5%
1.1%
32.8%
0.8%
0.0%

18.6%
1.8%
20.0%
0.4%
0.0%

26.3%
1.7%
24.5%
0.0%
0.0%

TradePayables
InsuranceReserves
MiscellaneousLiabilities
NonmarketableSecurities
Other
NetIncreaseinLiabilities

32.5%
1.2%
1.6%
5.7%
0.3%
14.2%
3.4%
8.1%
2.7%
6.7%
0.9%
5.3%
4.1%
0.5%
2.3%
0.6%
0.2%
0.3%
0.3%
0.6%
0.4%
0.0%
138.6%
112.4%
8.5%
99.2%
9.9%
7.9%
13.5%
15.5%
24.4%
22.9%
4.9%
167.5%
120.9%
7.8%
112.2%
8.5%
4.8%
9.3%
9.9%
14.1%
9.8%
2.6%
28.9%
8.5%
0.7%
13.0%
1.5%
3.1%
4.2%
5.6%
10.3%
13.1%
2.3%
$(24.6) $(34.0) $(268.8) $59.8 $289.6 $510.4 $438.0 $404.2 $254.5 $339.2 $2,161.9

34.2%
4.8%
130.1%
159.7%
29.6%

15.8%
0.7%
16.4%
12.6%
3.8%

15.1%
0.2%
3.0%
2.3%
0.7%

7.6%
0.4%
18.0%
7.3%
10.7%

NetFinancialInvestment

$15.9 $105.5 $198.1 $(4.6) $(287.0) $(476.3) $(436.1) $(374.8) $(265.5) $(335.1) $(784.3)

FixedInvestment
NonproducedFinancialAssets
GrossInvestment

$75.8 $80.8 $79.5 $81.0 $88.1 $93.7 $101.9 $109.2 $120.3 $123.2 $143.6
$(5.7) $(1.0) $(0.3) $(0.7) $0.3 $(0.2) $
$(0.5) $(13.3) $(1.3) $(6.6)
$86.0 $185.3 $277.3 $75.7 $(198.6) $(382.8) $(334.2) $(266.1) $(158.5) $(213.2) $(647.3)

Discrepancy

$27.6 $(8.1) $(10.6) $42.9 $18.3 $61.4 $19.2 $30.6 $20.6 $39.6 $159.6

ChangeinCashBalance

$(12.8) $59.4 $(55.1) $50.9 $(1.6) $(24.8) $(3.1) $4.6 $(5.5) $27.5 $1,260.1

CreditMarketInstruments
SavingsBonds
OtherTreasurySecurities
BudgetAgencySecurities
MultifamilyResidentialMortgages