Bailout: $23 trillion and counting
Kurt Brouwer July 20th, 2009
None of us really knows how much the various Federal bailout programs will cost, but the cost will certainly be measured in trillions of dollars that taxpayers will have to repay. Based on TARP’s watchdog, the total of all bailouts is a very large number as this Clusterstock piece (along with accompanying chart below) indicates:
…TARP watchdog Neil Barofsky says the total size of the bailout has now hit $23.7 trillion, when all the guarantees are factored in. Of course, the government doesn’t just provide a bailout total, so different parties may come up with different numbers…
Source: Clusterstock
The chart displays various bailout estimates that have been made by various publications and sources. As you can see, the total just keeps going up. It may well be that some of the bailout money gets repaid, but the total promised is so vast that even half this number is truly mindboggling.
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- Economy , Geopolitics , Money , debt , deficit
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this is the gross figure. you are misrepresenting. the net figure is what matters. the government is on multiple sides of many transactions. this is not a cost figure. it is an exposure.
Mike–Apparently, you did not read the first line of this post which was:
“None of us really knows how much the various Federal bailout programs will cost, but the cost will certainly be measured in trillions of dollars that taxpayers will have to repay…”
I think my statement is correct. The cost of the bailout will certainly be measured in trillions of dollars. Whether it’s $23 trillion or $12 trillion, it is still a lot of money that taxpayers will have to repay.
Kurt,
Even $12 trillion seems extreme. Current support has been reduced to about $3 trillion and that money has not been lost (yet). The cost will certainly be great but there’s no need to exagerate. I encourage those interested to actually skim an early version (when the support level was still $4.7 trillion) of the (262 page) SIGTARP report for themselves and to carefully read between the lines:
http://www.sigtarp.gov/987egapograbme123654/J09-3-SIGRTC.pdf
OK, I’ll bite. Mark do you have an estimate of what the bailout will cost? I see where Goldman Sachs just paid the Feds a nice chunk of change to close out the government’s final stake. So, that money coming back in would offset some of the other costs. But, what is the bailout really going to cost? Any thoughts?
Putting me on the spot, eh. OK, I’ll put my estimate of the costs where my mouth is.
It depends on the proportion of home mortgages backed by Fannie Mae or Freddie Mac go into default, and the amount of the mortgages that are recovered. It depends on the proportion of American banks that fail, and how much of those assets can be recovered. It depends on the amount of the assets held by money market mutual funds that turn out to be worthless. It depends on how much the value of the federal stake in the banks is worth. It depends on the proportion of securities owned by the banks guaranteed by the FDIC that go into default. And it depends on the value of the colateral posted by the banks in order to to get loans from the Fed.
In short, there are a lot of variables. Without going into detailed calculations (at least at the moment) I would say we’re going to be out by at least $2 trillion. The difficulty in estimating this is actually on the upper end (of course). The fact that we’re currently exposed for $3 trillion in losses and that this is down from earlier support suggests to me that if things don’t get any worse this could be the upper bound. However, if the economy fails to recover or gets worse in the next couple of years my rough guesstimate is that it could go as high as about $5 trillion.
I agree, this is bad enough, but it’s not $23.7 trillion by any stretch of the imagination.
And a trillion here and a trillion there…after a while it adds up to real money. I agree that there are lots of variables. For example, we saw some TARP money actually get repaid, so that’s a good sign. Unfortunately, we also saw the government’s Pension Benefit Guaranty Corporation is now guaranteeing Delphi’s pension plan and it, PBGC is now severely underfunded.
So, your guesstimate is probably as good as any for now. Saying that $3-5 trillion is a lot less than $23.7 trillion is both true and also meaningless because this event is far from played out. The latter number does represent the total of commitments that have been made. That alone is very significant.
Kurt,
In fact $2 trillion is the lower bound. I’m also fairly confident of the $5 trillion upperbound. It will be interesting to see what settles from the dust especially given how hurried my calculations actually were made. I almost wish that I had made a bet.
Mark–The betting window is still open.