TARP Uncovered -- the Real Cost of the Government Bailout

[kentuck]

<snip>
Estimated Total Costs of Bailout

* Fannie and Freddie bailout = $700 billion estimated, at least, on their $5 trillion portfolio.

* Federal Reserve's increased printing of money to fund purchase of mortgage securities in market and bad assets from banks (which directly leads to an equal amount of inflation, a hidden tax on consumers and savers) = $2 trillion.

* Eventual FDIC losses = $500 billion.

* Credit union guarantees = $50 billion.

* Present value cost of lost interest income to US retirees and other savers due to government's zero interest rate policy = $2 trillion.

* Present value cost of additional high unemployment and lost wages caused by government's focusing on bank and Wall Street profitability first, rather than on job creation = $5 trillion.

* Total loss in housing values due to inappropriate response to overbuilding and high foreclosure problem = $4 trillion (a fraction of the total housing value loss of10 trillion, much of which was necessary to return to non-bubble levels).

* Cost of future bad loans created since 2008 by Fannnie, Freddie and FHA by continuing to lend aggressively into declining real estate markets = $300 billion.

* Wasted stimulus money (Where exactly did this money go and what do we have to show for it?) = $300 billion.

* Total estimated cost of government bailout = $14.85 trillion.

......more

http://www.huffingtonpost.com/john-r-talbott/tarp-uncovered-the-real-c_b_746959.html

[safeinOhio]

1. Cost of a major depression?

[kentuck]

2. another snip from the article

<snip>
The New York Times reports this morning ("TARP Bailout to Cost Less Than Once Anticipated") that the true cost of TARP will be less than $50 billion. I find this type of reporting to be incredibly misleading and deceitful. Focusing solely on TARP and ignoring the other more costly portions of the government bailout of our biggest banks and corporations ignores the true cost of the government's (both the Bush and Obama administrations, the Fed and Congress) inept response to this crisis. One of the reasons that TARP did not cost more was because of the government's other more costly bailout policies, and to ignore them is to dramatically understate the true cost of the bailout.

By claiming a narrow TARP success, the Times attempts to invalidate citizen anger at the bailout by making it appear that the electorate is somehow misinformed about its costs or is just plain stupid. Nothing could be further from the truth. Claiming that TARP was successful, but ignoring the much larger and more relevant costs of other areas of the government bailout is like claiming the voyage of the Titanic was successful because many of the lifeboats were recovered. It is important to remember that the ship sunk.

........more

[indepat]

4. Got a good read on the amount of largess bestowed on Goldman Sachs in all these? We know the AIG

bailout bestowed, was it, $12.9 billion on GS which mostly went out promptly in bonuses. ;)

[still_one]

12. but also everyone's moneymarkets were wrapped up in AIG, and whatever retirement money they had

whether through IRAs or 401Ks would have been in peril had AIG gone bust

In my view the problem wasn't the bailout, it was that a significant number of the financial institutions that were bailed out, and were main contributors to the problem, were not punished, and worst of all, there is very little regulation to prevent this from happening again.

Nothing has been done about the dark pools, quants, or flash trading, and that is just the tip of the iceberg

In addition, very little help has been given to those whose houses are less than the loan. If they really wanted to help, they would force banks to restructure those loans at a longer term, and lower interest rate.

The unfairness is what is infuriating

[still_one]

3. No, if it wasn't done you would definitely have a major depression

We still don't know if we won't, but a major worldwide financial collapse was averted, at least for now

[kentuck]

6. Is that a fact?

Or an opinion?

[still_one]

7. It is a fact, there would have been a liquidity crisis that would have paralled 1929 /nt

[kentuck]

8. So there is nothing wrong with telling the truth about the actual costs?

There is no need to whitewash the costs? We are not making money off it.

[still_one]

9. Absolutely nothing wrong with it /nt

[kentuck]

10. I think that was a major point of the article...

That the NYTimes was not being honest with the actual costs - not whether we would go into a Depression or not?

[still_one]

13. Thanks /nt

[girl gone mad]

16. It wasn't merely a liquidity crisis.

It was a solvency crisis, and it hasn't likely gone away.

The bailouts did nothing but paper over losses and allow a group of interested men to walk away from their failures with enormous wealth at the expense of the public treasure. Worse, it gave more power to our corrupt financial sector at the precise moment when we needed to be reigning in big finance.

It's interesting that people still argue these actions prevented a depression. In fact, if you look at the metrics the bailouts were supposedly designed to improve, they failed on just about every level. M3 is still broken. Lending continued to decline precipitously long after the bailouts were pushed through. The housing market remains weak, with foreclosures still climbing. TARP was sold to Congress and the public as a program which would buy up toxic assets. We were told this needed to be done immediately (to prevent that depression, of course), thus the bill was rushed through congress without going through committee or being subjected to any expert review. In fact, TARP was never used to buy toxic assets and the funds from TARP weren't even put into play for many weeks after the liquidity crisis had peaked and receded.

I think when historians look back at our modern era, the colossal policy failure before, during and after the economic crisis will be seen as the American middle class's Waterloo.

[indepat]

17. Your second paragraph encapsulates what unfettered capitalism run amok in a climate of laizze-faire

governance is all about. ;)

[girl gone mad]

11. We'll know soon enough..

if the austerians get their way.

Don't kid yourself, unless we see a dramatic shift in economic policy, the bailouts will have directly caused a depression, not prevented one.

[still_one]

14. I think the only thing you can say for certain is that the bailouts delayed a full out depression

Whether it prevented one or not, we will know as you said, in the fullness of time

[HughMoran]

5. Preventing a Depression

Priceless.

[ProgressiveEconomist]

15. Most of Talbott's '$14.85 trillion bailout' estimate is absurdly mislabeled, IMO

It is true that business cycles are very costly to stakeholders in the economy. They always have been, and they always will be, IMO.

But IMO it is intentionally misleading to stick "government" with the entire bill for downturns in the economy, as if they ever could be prevented entirely. And even worse, it is especially misleading to blame generic "government" for the mismanagement of individual entities such as Greenspan's Fed, Dubya's maladministration, and often fraudulent bank and non-bank housing finance.

Unlike Talbott's article, let's consider four of the biggest-ticket items on the list in order of magnitude.

"Present value of additional unemployment and lost wages ..." IMO is entirely subjective, yet Talbott expects readers to swallow an estimate of $5 trillion, with no details of his calculation. And I'd like to see a breakdown of what he's charging to Dubya's second recession and what he's charging to Obama's inheritance of same. Obama's stimulus plan has turned around private-sector job creation in record time, compared to efforts to reverse recent past recessions.

"Total loss in housing values ..." is a very subjective category. Is this Talbott's idea of what was preventable? Let's see some details. Most of this must be attributed to Greenspan's reign at the Fed, which ended in 2006. He easily could have tightened interest rates or regulated fraudulent mortgages, but he did not. There is a bill for Greenspan's epic fail, and maybe $4 trillion is an underestimate, but let's not blame generic "government" and, between the lines, the Obama administration.

"Present value of lost interest income ..." has to be chargeable to the Fed, but how much does Talbott charge to Greenspan, how much to Bernanke, and what were Greenspan's and Bernamke's alternatives? Greenspan at least had a choice; Bernanke had no choice but to accelerate short-term interest rates downward when the financial system threatened to implode during 2007-2009.

"Fed asset purchases" before and in addition to TARP similarly were not a matter of much choice for Bernanke. And it's quite premature to blame them for "inflation".

These four very questionable categories alone account for $13 trillion of Talbott's very mmisleading "$14.85 trillion bailout" estimate. Maybe Talbott is floating a trial balloon for his next book, to see just how much absurdity many in his ill-informed readership will swallow.

[girl gone mad]

19. Actually, he left out quite a bit.

http://www.sourcewatch.org/index.php?title=Total_Wall_Street_Bailout_Cost

[quaker bill]

18. The BS is strong in this one...

The loss of housing value has to do with the bubble, not the bailout.

The loss of interest income, while real hs nothing to do with any bailout. Interest rates were low during the bubble as well. This is the reason the bubble came to exist.

There has been no meaningful inflation in a decade and no evidence of inflation on the horizon. So "printing" the 2 trillion apparently cost nearly nothing, because they did not even print it on paper, it was nothing more than mouse clicks. I don't know what the cost of a few keystrokes and mouse clicks totals to, but my guess is less than $1.

What is "wasted stimulus money"? Did they burn it? If they used it to purchase stuff and employ people, then it was stimulative and not "wasted". When people were hired to help folks through bankruptcy and in seeking federal assistance, the money was not wasted, even if we have no shiny new object to point at. I know many folks who got stim funded jobs at the homeless shelters providing assistance to the newly homeless. This money was not wasted.

[girl gone mad]

20. ""printing" the 2 trillion apparently cost nearly nothing"

So.. you would agree to simply printing our way out of the SS "crisis" and printing our way out of the unemployment crisis, printing to pay off our foreign debts, etc.?

Are you saying that when the Fed printed $2 Trillion out of thin air to buy up the banks' worthless assets (at 100¢ on the dollar), this action didn't have any negative economic impact? What do you think the banks did with the $2 Trillion? Why do you think it is that the broad economy is still suffering, even as the banks have been fully recapitalized? What do you think the ultimate outcome of this stealth monetization will be?