Anyone else see the NY Times article about the $23 trillion bailout number being completely bogus?

[HamdenRice]

If I weren't being lazy and in a rush to do things off line, I'd google it and post a link. Anyway, front page of the NY Times deconstructs the number and calls it completely bogus along the lines of the discussion here yesterday or the day before. It said that every single bank would have to fail, every money market would need to fail, every mortgage would have to default, and all the collateral that backed these up would have to have zero value.

It then said the actual outlays for the bailouts were around $2 trillion, but that almost all of it was backed up by valuable collateral, and did not in the end give an estimate of the actual cost.

[girl gone mad]

1. Of course no one believes that the government is going to lose $23.7 T,

But that article completely missed the larger point. That figure represents hard dollar expenditures like TARP, plus credit lines and guarantees via special facilities like the TALF, etc. The fact that the Federal government has extended such an enormous amount of real and potential support to private financial institutions is politically significant. It's a major story and it has very serious implications, despite the attempts by certain parties to downplay the numbers.

[zbdent]

2. since the op couldn't get the link, maybe you'd provide?

Thanks ...

[girl gone mad]

3. no problem..

http://www.nytimes.com/2009/07/21/business/economy/21bailout.html?_r=1&ref=business">Big Estimate, Worth Little, on Bailout

[zbdent]

4. 10Q 10Q 10Q!

[HamdenRice]

5. Yes, but around here people were saying the US "gave" the banks 13 or 23 trillion...

that we'd be paying the debt forever, that the Fed was shoveling free money out the back door of the Treasury building, yada, yada, yada. Can we all agree that these were mostly extensions of credit or guarantees?

That would be a big step for DU to have this consensus.

[girl gone mad]

10. Credit guarantees are not without enormous risk.

Just take a look at Fannie and Freddie. The tab for those two was $33 Billion last quarter alone.

[JohnWxy]

13. And would you like to calculate the cost of doing nothing?

[girl gone mad]

20. You've really built quite a straw man there.

If you've followed any of the bailout related discussion over the previous months, you should be aware that there were many alternatives to the unfettered handouts that the banks were given. It didn't have to be this way.

[JohnWxy]

21. so you prefer to ignore the very real question. as to alternatives I didn't ask for a survey I just

asked what YOUR alternative is. No answer I guess.

[JohnWxy]

11. What alternative action would you have recommended. Do NOTHING? and get a GREAT DEPRESSION II

here's some from the NYT article:


Neil M. Barofsky, the special inspector general for the Troubled Asset Relief Program set up by the Treasury Department, came up with the largest number yet in testimony prepared for delivery Tuesday to a House committee. “The total potential federal government support could reach up to $23.7 trillion,” he stated.

But in the report accompanying his testimony, Mr. Barofsky conceded the number was vastly overblown. It includes estimates of the maximum cost of programs that have already been canceled or that never got under way.

It also assumes that every home mortgage backed by Fannie Mae or Freddie Mac goes into default, and all the homes turn out to be worthless. It assumes that every bank in America fails, with not a single asset worth even a penny. And it assumes that all of the assets held by money market mutual funds, including Treasury bills, turn out to be worthless.

It would also require the Treasury itself to default on securities purchased by the Federal Reserve system.

The sheer unreality of the number did not stop some members of Congress from taking the estimate seriously.

[econoclast]

6. Don't be complacent

The NYT is both right and wrong.

The hard dollar expenditure is in the 2 or 3 trillion dollar range. This is a HUGE number in itself.
The rest of the 20 trillion is in the form of programs authorized but not activated, and loan / credit guarantees. So these are only potential expenditures.

BUT

Before we say "no worries", think ... Isn't the "no worries" attitude the very same one adopted by the management of AIG?
"Credit default swaps?". "We'll never have to pay out on those!!!"

Those whom the gods would destroy they first make proud.

And no Congress can repeal Murphy's Law.

[JohnWxy]

14. NObody is saying "no worries".. Mr. Barofsky conceded the number was vastly overblown

BArofsky admitted in an interview: “We’re not suggesting that we’re are looking at a potential loss to the government of $23 trillion,” he said.

Oh really, that's the impression his testimony gave.

What a schmuck!


And that 2 to 3 trillion dollars is NOT "hard expenditure"s.

$70 Billion of the loans has been repaid with interest.

[econoclast]

18. Hard expenditure indeed

As of 17July, the Fed balance sheet is something like 2.03 trillion. That is AFTER. The TARP repayment including the interest paid.
But that is not including the bailout pieces that are part of the budget defecit and not on the Fed balance sheet.

So hard dollars expended in the range of 2 to 3 trillion in spot on.

[JohnWxy]

23. I'm surprised you didn't give some documentation, links.

this money went into loans and purchase of convertible preferred stocks. Unless these lending institutions and corporations go bust and we have to take what liquidation of assets yields, the debt will be repaid ....with interest.... and the stocks will be sold.

This does not mean that entire amount will be lost....Right?

These are expenditures but not expenses. You generally don't call an investment of funds an expense. When you puchase a bond you don't consider it an expense but an investment which will yield a stream of payments in the future. This stream of future payments has a value which must be recognized if you are to keep your books straight.


NOw there are expenses involved in operating the TARP. They are quite considerable but not into the Trillions of dollars.

[truedelphi]

7. How much money did Bernanke "create" to buy up bonds from Treasury

that no other major powers were purchasing?


Is there anyone here at DU that knows?
That is a number that consistently is missing from discussions.

[HamdenRice]

9. He didn't have to. Interest to the Treasury was effectively zero.

That was the fortunate shocker of the financial crisis. Many economists expected that the bailout costs would make the US balance sheet look bad, causing the Fed to have to print money to sell bonds or raise interest rates.

What happened instead to the surprise of many was that as the financial markets were partially liquidated, global savings sought the safest possible investment, and to everyone's surprise, that was still t-bills. In the fall and winter, the demand for t-bills was so high that the interest rate fell effectively to zero, so the Treasury had free money to fund the bailout and stimulus.

If this ever happens again we may not be so lucky.

[truedelphi]

8. Here are some stats from CNN Bailout Tracker

You can visit that site yourself by going here:

http://money.cnn.com/news/storysupplement/economy/bailouttracker/

So there was the folowing:

700 Billion for TARP

6.4 Trillion for Fed Reserve Rescue Program

1.2 Trillion for Stimulus
182 Billion to AIG
30.3 Billion to FDIC

Other Financial Incentives totalling 1.7 Trillion

Other Housing Programs totalling 745 Billion

And CNN combines all figures above for a massive Eleven Trillion

[On the Road]

17. The Only Part of That Money

that is certain not to be repaid is that the $182B for AIG. That's down the drain. Unless other major institutions start failing, the $182B is going to be by far the biggest item. TARP money is, and should have, a positive return.

The stimulus programs, of course, spent money for a variety of different things that is adding to the deficit. But most of that money is either being spent for specific programs such as construction, or returned to taxpayers in tax cuts or credits like cash for clunkers or the first-time home buyer credit. So while it came out of the budget, it's not equivalent to throwing money down the drain.

[truedelphi]

19. I would feel a lot more confident about us taxpayers get the value out of

The money being spent were there some real accountability.

And then there is the matter of legislation being passed that does not look at restrictions that states have imposed.

When DeFazio has to meet with the big wigs like Rogoff and plead a case for his state, it sugggests that we are in trouble. His state, Oregon, cannot apply for much of the Stimulus transportation and highway monies, as in the Oregon constitution, the state can take money from the Federal Gvoernment if the funding will actually complete aproject. Since Oregon's projects are all two to five eyar projects, and the Federal government is only offering eighteen months of funding, DeFazio knows his state won't be able to receive anything.

Don't you think it irresponsible for legislation totalling hundreds of billions of dollars to go through the Congressional hopper and not have those considerations made before they are voted on and set in stone?

[On the Road]

22. There are Probably Lots of Loose Ends

and lots of things that could have been done better. This is after all a major spending bill fought over like any other spending bill. But it's pretty much the status quo and to a certain extent haste trumped care.

[steven johnson]

12. $23 trillion is the worst case scenerio

Those are the total potential liabilities.

Rare worst case scenerio events do occur -- Three Mile Island and Chernobel events just couldn't happen, according to early apologists. Read Talib's "Black Swan."
Black swan theory



"The taxpayers now have a $700 billion spending program that's being run under the philosophy of 'Don't Ask, Don't Tell,'" Rep. Edolphus Towns, D-N.Y. said.

Rep. Darrell Issa, R-Calif., said the Treasury is "actively obstructing" the ability of lawmakers and taxpayers to understand the value of the various investments that have been made as part of the Troubled Asset Relief Program.

Barofsky's office estimates the U.S. government's potential exposure to programs aimed at dealing with the financial crisis at $23.7 trillion. To get that figure, Barofsky combined direct spending with all the government guarantees and programs and assumes the "gross exposure" the government could face if all the programs were tapped to their fullest potential.

2nd UPDATE:US Treasury Criticized Sharply On Watchdog Report

[JohnWxy]

16. It would also require the Treasury itself to default on securities purchased by the Federal Reserve

[JohnWxy]

15. Recommended! Fight disinformation!