Adding Up the Bailout Total

[girl gone mad]

Adding Up the Bailout Total

via http://www.ritholtz.com/blog">The Big Picture

CNN has posted an interactive chart detailing where the bailout money has gone. Click on the image to access the full chart.

http://money.cnn.com/news/specials/storysupplement/bailout_scorecard/index.html">

[FrenchieCat]

1. Will it show what the government gets back over time, or no?

[notesdev]

3. If you need that figure

Just add the number '0' wherever on the page you'd like it listed.

The only reasonable expectation is that every last dollar allocated to these thieves will be gone, permanently. Why would they leave a scrap on the table? It's not like they have shown any restraint, or are likely to.

[HamdenRice]

5. It's possible that the government will get back most of it

The way to tell what the government gets back is to look at any item that says "lending," "loan," "credit" or "facility."

Here's a slightly more detailed accounting:



This is a bit out of date, but the first thing to note is that of the amount potentially allocated, most of it has not yet been used. The peculiar psychology of the international bond and banking markets is that during a panic, if the government says we're ready to step in with X dollars to prevent a collapse, then there is no panic, and the amount X never actually has to get used. That's also why so many of the items are "guarantees" many of which have not had to be used.

The biggest chunk is the Fed's various bailouts. Despite the hysteria you hear about the Fed "shoveling money" to "greedy fatcats," generally, the Fed makes money on these loans. The commercial paper facility ($270 billion as of December, but may have been as high as $1.8 trillion) has already been paid back and re-lent; that's because commercial paper is very short term (30, 60, 90 days), and the program started in September. It's like a giant revolving credit account that corporations, that used to borrow from money market funds, now borrow from until the money market/commercial paper market returns to normal. Again, this is fairly profitable to the Fed.

Another big chunk of the Fed's program is lending to other central banks ("foreign exchange dollar swaps" in the OP at $327 billion). Since no central banks have collapsed, all of this money is likely to be paid back, although there may be losses or profit to the Fed as a result of the movements of currencies compared to dollars and each other.

Barney Frank says that he still believes that TARP will make money for the government ($350 billion). The TARP involved the Treasury buying preferred stock in banks and warrants to buy common stock, and the preferred stock pays dividends, so the recipients have already paid billions in dividends on the preferred to the government. Some banks are already offering to sell the preferred back to the government at face value, which means that the government will have made money on those bailouts (face value plus dividends).

So, as you can see, much of the bailout was simply lending and telling the financial sector, we'll backstop certain institutions; it was not a "giveaway".

If you want a big picture perspective, look at it this way. We used to have a functioning banking and lending system. There were trillions and trillions of dollars of savings that were being lent to corporations and individuals. That system collapsed. The trillions of savings fled to the safest investment on the planet -- lending to the federal government through the purchase of treasury bills. The federal government in turn stepped in and became the biggest bank in the world, taking over many of those lending functions.

As a result, a lot of the profits that the bank lending system used to make, are now being made by the federal government.

I will confess, however, that for some people it's much more "fun" to scream about the government giving away money to "fat cats" and putting us in debt forever, than adding up the tallies on spread sheets.

That said, this accounting is why I am opposed to Geithner's plan. Geithner's plan is genuinely a giveaway to the financial sector, and worst of all, it's a giveaway to hedge funds who hardly need it.

[amandabeech]

7. So, Mr. Sanguine,

do you trust Geithner to come up with a regulatory structure that will help prevent the financial sector from devising, manufacturing and selling products that blow up when the economy turns south?

How will the markets punish those who were too smart by half to keep from coming up with something equally toxic in fifteen years?

This crowd has produced junk bonds, mythical IPOs and atomic derivatives since I've had some involvement. It seems that every time, they get away with a slap on the wrist, if that, and go on to greedy excess again.

You seem to know these folks very well. Maybe you're one of them. How would you stop the Masters of the Universe?

[girl gone mad]

8. The Federal Reserve is a quasi-public entity.

The Federal Government doesn't collect interest from this lending, the Federal Reserve does. Before last year, the Fed collected only top-rated asset backed and government securities as collateral. Since then, they have lowered standards to accept low rated securities, including subprime CDOs ("toxic" assets).

In 2007, Treasury securities accounted for 92 percent of the Fed's assets. Last April it was down to 65 percent, I don't have time to do the math right now, but looking at the most recent H.4.1 report, mortgage backed securities holdings have only increased.

There has been so little transparency throughout this process that it's impossible to make the claim that we are profiting from the Fed's lending or to assume that we ever will. Even if we end up making a stated profit, it will likely come on the back of certain asset, commodities and consumer price inflation, which is not beneficial to working people in this era of declining wages and lost jobs.

[HamdenRice]

9. The Fed is part of the federal government

The Fed typically makes a profit year to year, and it turns those profits over to the federal government's general revenue -- giving lie, of course, to the preposterous theory that the Fed is a private bank.

The Fed has increased it's holding of non Treasury securities. That's the whole point, and it's what the Fed did during the Roosevelt administration as well. It takes mortgage backed securities as collateral for loans from banks -- which means that the banks have to take back the mortgage backed securities as the loans are paid off. So the chances of losses are minimal, unless the bank fails and can't pay the loan.

I've read a lot about the inflation worries, which is supposed to occur as a result of the Fed's pumping liquidity into the system, but I fail to understand why the Fed's replacing lost private liquidity (as opposed to increasing net liquidity) would cause inflation, nor why such liquidity should increase prices during a severe economic downturn when capacity is slack and there is high unemployment and low aggregate demand.

[notesdev]

2. Missing... trillions

~$6 trillion in Fed swaps is missing from the list, which is not surprising, since your average reporter probably can't connect the dots on that one.

[Po_d Mainiac]

4. Yup, Time for Chopper Ben to open his books!! n/t

[truedelphi]

10. I have no reason to not believe you, but where would documentation on that 6 trillion be?

Congressional meeting shown on C Span had people saying that 2.9 trillion total has been given to Bailout Plans. (And it was also said last night that that 2.9 trillion is equivalent to all the Federal government spendin on all Federal government programs last year.)

However, some experts in various blogs on web say that over 9 trillion has been allotted.

I'd love a source.

[dixiegrrrrl]

6. I don't see AIG..did I miss it?