Government bailout hits $8.5 trillion Kathleen Pender Wednesday, November 26, 2008 The federal government committed an additional $800 billion to two new loan programs on Tuesday, bringing its cumulative commitment to financial rescue initiatives to a staggering $8.5 trillion, according to Bloomberg News. That sum represents almost 60 percent of the nation’s estimated gross domestic product. Given the unprecedented size and complexity of these programs and the fact that many have never been tried before, it’s impossible to predict how much they will cost taxpayers. The final cost won’t be known for many years. The money has been committed to a wide array of programs, including loans and loan guarantees, asset purchases, equity investments in financial companies, tax breaks for banks, help for struggling homeowners and a currency stabilization fund. Most of the money, about $5.5 trillion, comes from the Federal Reserve, which as an independent entity does not need congressional approval to lend money to banks or, in “unusual and exigent circumstances,” to other financial institutions. To stimulate lending, the Fed said on Tuesday it will purchase up to $600 billion in mortgage debt issued or backed by Fannie Mae, Freddie Mac and government housing agencies. It also will lend up to $200 billion to holders of securities backed by consumer and small-business loans. All but $20 billion of that $800 billion represents new commitments, a Fed spokeswoman said. About $1.1 trillion of the $8.5 trillion is coming from the Treasury Department, including $700 billion approved by Congress in dramatic fashion under the Troubled Asset Relief Program. The rest of the commitments are coming from the Federal Deposit Insurance Corp. and the Federal Housing Administration. Only about $3.2 trillion of the $8.5 trillion has been tapped so far, according to Bloomberg. Some of it might never be. Relatively little of the money represents direct outlays of cash with no strings attached, such as the $168 billion in stimulus checks mailed last spring. Where it’s going Most of the money is going into loans or loan guarantees, asset purchases or stock investments on which the government could see some return. “If the economy were to miraculously recover, the taxpayer could make money. That’s not my best guess or even a likely scenario,” but it’s not inconceivable, says Anil Kashyap, a professor at the University of Chicago’s Booth School of Business. The risk/reward ratio for taxpayers varies greatly from program to program. For example, the first deal the government made when it bailed out insurance giant AIG had little risk and a lot of potential upside for taxpayers, Kashyap said. “Then it turned out the situation (at AIG) was worse than realized, and the terms were so brutal (to AIG) that we had to renegotiate. Now we have given them a lot more credit on more generous terms.” Kashyap says the worst deal for taxpayers could be the Citigroup deal announced late Sunday. The government agreed to buy an additional $20 billion in preferred stock and absorb up to $249 billion in losses on troubled assets owned by Citi. Given that Citigroup’s entire market value on Friday was $20.5 billion, “instead of taking that $20 billion in preferred shares we could have bought the company,” he says. It’s hard to say how much the overall rescue attempt will add to the annual deficit or the national debt because the government accounts for each program differently. If the Treasury borrows money to finance a program, that money adds to the federal debt and must eventually be paid off, with interest, says Diane Lim Rogers, chief economist with the Concord Coalition, a nonpartisan group that aims to eliminate federal deficits. The federal debt held by the public has risen to $6.4 trillion from $5.5 trillion at the end of August. (Total debt, including that owed to Social Security and other government agencies, stands at more than $10 trillion.) However, a $1 billion increase in the federal debt does not necessarily increase the annual budget deficit by $1 billion because it is expected to be repaid over time, Rogers said.
This is kind of scary… Jim Bianco of Bianco Research crunched the inflation adjusted numbers. The bailout has cost more than all of these big budget government expenditures – combined: • Marshall Plan: Cost: $12.7 billion, Inflation Adjusted Cost: $115.3 billion • Louisiana Purchase: Cost: $15 million, Inflation Adjusted Cost: $217 billion • Race to the Moon: Cost: $36.4 billion, Inflation Adjusted Cost: $237 billion • S&L Crisis: Cost: $153 billion, Inflation Adjusted Cost: $256 billion • Korean War: Cost: $54 billion, Inflation Adjusted Cost: $454 billion • The New Deal: Cost: $32 billion (Est), Inflation Adjusted Cost: $500 billion (Est) • Invasion of Iraq: Cost: $551b, Inflation Adjusted Cost: $597 billion • Vietnam War: Cost: $111 billion, Inflation Adjusted Cost: $698 billion • NASA: Cost: $416.7 billion, Inflation Adjusted Cost: $851.2 billion TOTAL: $3.92 trillion
damn - I can’t believe the bailout trumps these two by so much. • Invasion of Iraq: Cost: $551b, Inflation Adjusted Cost: $597 billion • Vietnam War: Cost: $111 billion, Inflation Adjusted Cost: $698 billion
This is the scariest thing I’ve read to date: As part of the ambitious moves, the government’s two huge printing facilities - in Washington, DC, and Fort Worth, Tex. - will have to expand their already strained, 24-hour output. To upgrade and rebuild money presses, the government said with little notice on Nov. 14 that it began negotiating an exclusive contract with Swiss printing giant KBA-Giori, SA to provide labor, parts, repairs, upgrades, improvements, service, software and equipment in a long-term contract. I got it from The New York Post of all places.
So looks like deflation followed by Hyperinflation, eh?
-Invasion of Iraq: $597 billion -Governmet Bailout: $8.5 trillion Smile on Bush’s face as he leaves the problems to the next guy: Priceless.
RAwannabeCFA Wrote: ------------------------------------------------------- > This is kind of scary… > > Jim Bianco of Bianco Research crunched the > inflation adjusted numbers. The bailout has cost > more than all of these big budget government > expenditures – combined: > > • Marshall Plan: Cost: $12.7 billion, > Inflation Adjusted Cost: $115.3 billion > • Louisiana Purchase: Cost: $15 million, > Inflation Adjusted Cost: $217 billion > • Race to the Moon: Cost: $36.4 billion, > Inflation Adjusted Cost: $237 billion > • S&L Crisis: Cost: $153 billion, Inflation > Adjusted Cost: $256 billion > • Korean War: Cost: $54 billion, Inflation > Adjusted Cost: $454 billion > • The New Deal: Cost: $32 billion (Est), > Inflation Adjusted Cost: $500 billion (Est) > • Invasion of Iraq: Cost: $551b, Inflation > Adjusted Cost: $597 billion > • Vietnam War: Cost: $111 billion, Inflation > Adjusted Cost: $698 billion > • NASA: Cost: $416.7 billion, Inflation > Adjusted Cost: $851.2 billion > > TOTAL: $3.92 trillion It’s not like the $8.5 trillion is gone. We have no idea how much money the government will get back and what the real cost will be.
Be that as it may, I think the Louisiana Purchase was a much better deal than bailing out AIG. How much would it have cost to buy Canada or Mexico instead of this bailout? How about Cuba? My Grandpa used to enjoy Cuba. Hemingway enjoyed Cuba.
Alberta would be worth more than the rest of Canada
Has anyone done an inflation-adjusted comparison between the Louisiana Purchase and the deal to buy the island of Manhattan to see which deal was better and by how much? Edit: This is a serious question.
This is silly. When you make a loan, you don’t expense the entire amount. I also fail to see how many of the referenced events are relevant benchmarks.
NakedPuts Wrote: ------------------------------------------------------- > This is silly. When you make a loan, you don’t > expense the entire amount. I also fail to see how > many of the referenced events are relevant > benchmarks. +1
I love the fact that we are bailing out homeowners who bought half million dollar houses on $20K salaries. This world is headed for armageddon.