[bailout costs] A trillion here, a trillion there...

[J]

...and pretty soon the amount of money that's been set aside for the economic rescue programs is nearly as big as the GDP.

Bloomberg link

Financial Rescue Nears GDP as Pledges Top $12.8 Trillion (Update1)

By Mark Pittman and Bob Ivry

March 31 (Bloomberg) -- The U.S. government and the Federal Reserve have spent, lent or committed $12.8 trillion, an amount that approaches the value of everything produced in the country last year, to stem the longest recession since the 1930s.

New pledges from the Fed, the Treasury Department and the Federal Deposit Insurance Corp. include $1 trillion for the Public-Private Investment Program, designed to help investors buy distressed loans and other assets from U.S. banks. The money works out to $42,105 for every man, woman and child in the U.S. and 14 times the $899.8 billion of currency in circulation. The nation’s gross domestic product was $14.2 trillion in 2008.

President Barack Obama and Treasury Secretary Timothy Geithner met with the chief executives of the nation’s 12 biggest banks on March 27 at the White House to enlist their support to thaw a 20-month freeze in bank lending.

“The president and Treasury Secretary Geithner have said they will do what it takes,” Goldman Sachs Group Inc. Chief Executive Officer Lloyd Blankfein said after the meeting. “If it is enough, that will be great. If it is not enough, they will have to do more.”

Commitments include a $500 billion line of credit to the FDIC from the government’s coffers that will enable the agency to guarantee as much as $2 trillion worth of debt for participants in the Term Asset-Backed Lending Facility and the Public-Private Investment Program. FDIC Chairman Sheila Bair warned that the insurance fund to protect customer deposits at U.S. banks could dry up because of bank failures.

‘Within an Eyelash’

The combined commitment has increased by 73 percent since November, when Bloomberg first estimated the funding, loans and guarantees at $7.4 trillion.

“The comparison to GDP serves the useful purpose of underscoring how extraordinary the efforts have been to stabilize the credit markets,” said Dana Johnson, chief economist for Comerica Bank in Dallas.

“Everything the Fed, the FDIC and the Treasury do doesn’t always work out right but back in October we came within an eyelash of having a truly horrible collapse of our financial system, said Johnson, a former Fed senior economist. “They used their creativity to help the worst-case scenario from unfolding and I’m awfully glad they did it.”

Federal Reserve officials project the economy will keep shrinking until at least mid-year, which would mark the longest U.S. recession since the Great Depression.

The following table details how the Fed and the government have committed the money on behalf of American taxpayers over the past 20 months, according to data compiled by Bloomberg.

Code: Select all

===========================================================
                                  --- Amounts (Billions)---
                                   Limit          Current
===========================================================
Total                            $12,798.14     $4,169.71
-----------------------------------------------------------
 Federal Reserve Total            $7,765.64     $1,678.71
  Primary Credit Discount           $110.74        $61.31
  Secondary Credit                    $0.19         $1.00
  Primary dealer and others         $147.00        $20.18
  ABCP Liquidity                    $152.11         $6.85
  AIG Credit                         $60.00        $43.19
  Net Portfolio CP Funding        $1,800.00       $241.31
  Maiden Lane (Bear Stearns)         $29.50        $28.82
  Maiden Lane II  (AIG)              $22.50        $18.54
  Maiden Lane III (AIG)              $30.00        $24.04
  Term Securities Lending           $250.00        $88.55
  Term Auction Facility             $900.00       $468.59
  Securities lending overnight       $10.00         $4.41
  Term Asset-Backed Loan Facility   $900.00         $4.71
  Currency Swaps/Other Assets       $606.00       $377.87
  MMIFF                             $540.00         $0.00
  GSE Debt Purchases                $600.00        $50.39
  GSE Mortgage-Backed Securities  $1,000.00       $236.16
  Citigroup Bailout Fed Portion     $220.40         $0.00
  Bank of America Bailout            $87.20         $0.00
  Commitment to Buy Treasuries      $300.00         $7.50
-----------------------------------------------------------
  FDIC Total                      $2,038.50       $357.50
   Public-Private Investment*       $500.00          0.00
   FDIC Liquidity Guarantees      $1,400.00       $316.50
   GE                               $126.00        $41.00
   Citigroup Bailout FDIC            $10.00         $0.00
   Bank of America Bailout FDIC       $2.50         $0.00
-----------------------------------------------------------
 Treasury Total                   $2,694.00     $1,833.50
  TARP                              $700.00       $599.50
  Tax Break for Banks                $29.00        $29.00
  Stimulus Package (Bush)           $168.00       $168.00
  Stimulus II (Obama)               $787.00       $787.00
  Treasury Exchange Stabilization    $50.00        $50.00
  Student Loan Purchases             $60.00         $0.00
  Support for Fannie/Freddie        $400.00       $200.00
  Line of Credit for FDIC*          $500.00         $0.00
-----------------------------------------------------------
HUD Total                           $300.00       $300.00
  Hope for Homeowners FHA           $300.00       $300.00
-----------------------------------------------------------

The FDIC’s commitment to guarantee lending under the
Legacy Loan Program and the Legacy Asset Program includes a $500
billion line of credit from the U.S. Treasury.


To contact the reporters on this story:
Mark Pittman in New York at
mpittman@bloomberg.net;
Bob Ivry in New York at
bivry@bloomberg.net.



Last Updated: March 31, 2009 14:20 EDT

Nearly $13 trillion earmarked of which almost $4.2 trillion has already been spent. Pretty mindblowing isn't it? It's getting to the point where one becomes numb to the numbers; it feels like they're adding countless billions every couple weeks plus how does the average person wrap his mind around numbers this big?

[MKSheppard]

Keep in mind that if we ordered 1,000 F-22A Raptors, it would cost us only about $150 billion.

[Lord MJ]

The question I have is not why we are spending this much money, it's HOW are the bailouts costing this much?

[Crayz9000]

Keep in mind that if we ordered 1,000 F-22A Raptors, it would cost us only about $150 billion.

I thought that's the kind of government spending that's supposed to HELP with recession/depression recovery... unlike handing wads of cash to already well-padded financiers.

[Uraniun235]

Building combat aircraft can help, since there's definitely a ripple-effect - the assemblers have to pay their workers as well as their component suppliers, and the component suppliers have to pay their workers as well as their materials suppliers, etc. It helps to maintain expertise within what has become an extremely technical and complex industry.

That said, it's not as beneficial as purchasing things which can in turn play a part in producing goods and services. So, (for example) building a hundred nuclear power plants would not only employ a lot of people and provide business to a lot of companies, but those power plants would in turn feed us plentiful electricity which can be used to manufacture other things as well as to make our lives more comfortable.

It's absolutely staggering to think of how much money has been thrown down the drain in the last decade, when you consider all of the useful and productive things that could have been done with that money.

[aerius]

The question I have is not why we are spending this much money, it's HOW are the bailouts costing this much?

The joys of margin & leverage. The financials are leveraged up like mad, when the economy's doing well it's great, when there's a downturn and they're on the wrong side of the trade, they get slaughtered. For example, let's say Shittybank has a 30:1 leverage ratio, that means if the value of its investments goes up by $1, Shittybank will make a $30 profit. And of course the reverse is true, if the investment loses $1, Shittybank loses $30.

So let's say we have $2 trillion of shitty mortgage loans which got packaged into the same nominal amount of mortgage backed securities. The financials slice & dice it some more and turn it into $10 trillion worth of structured finance products, and then they sell another $10 trillion of insurance and credit default swaps on those structured finance products. And then the financials go out and buy all this shit on margin which further increases the leverage. So now you have over $20 trillion of funny money based on $2 trillion of shitty mortgage loans, when those mortgages start defaulting it multiplies through the system and turns a $300 billion loss into a $3 trillion loss.

So that's how we managed to blow $4 trillion & change with practically no effect. Thanks to the leverage & Enron style accounting, there's basically no limit to the losses, it's fucking black hole.

[Dominus Atheos]

Is the following a good analogy for the bailout/TARP and the public/private plan?

The CEO of Citigroup has a pen that looks a lot like this. On the list of Citigroup assets, he says the pen is worth $5 billion dollars. If he tried to sell it, the most anyone would give him is 5¢. On paper Citigroup is filthy stinking rich, but for some unknown reason they don't have any money to give loans. The Fed asks them why, and Citigroup say that it's because all of their assets are tied up in $5 billion dollar pens, and due to a market downturn no one is willing to pay them $5 billion dollars for the pen. (It's certainly not because the pen is worthless)

Citigroup says it's really hard because them not being able to give loans is making the downturn worse. The Fed comes up with the brilliant of giving Citigroup money so they can make loans, and reverse the market downturn. Then when things get back to normal and someone is willing to pay $5 billion dollars for the pen, then Citigroup can promise to pay the Fed back. For some reason this brilliant plan doesn't work very well, and Citigroup still isn't giving loans. Due to the mark-to-market rule, Citigroup is going to have to list the value of the pen as 5¢ pretty soon and then they'll go bankrupt, even though the pen is really worth $5 billion dollars and if we could just fix this darn downturn Citigroup could sell it for that much.

The Fed comes up with the even more brilliant plan of revoking the mark-to-market rule paying private investors $4,999,999,999.95 to buy the pen for $5 billion. Then even if the downturn doesn't get reversed the private investor breaks even, and if it does get fixed they make nearly $5 billion dollars. And since Citigroup will have all their money back, they'll be able to make loans and the downturn is sure to get reversed!

I'm just trying to wrap my head around everything and that's the best analogy I could come up with. Is that about right, or completely off the mark?

[J]

Is the following a good analogy for the bailout/TARP and the public/private plan?

That's pretty much it except for a few minor details. With the PPIP, the Fed isn't paying private investors $5 billion less a nickel to buy the pens, it's a little more convoluted than that, at least if I'm understanding it correctly.

The Fed pays Citigroup $5 billion for the pen, using taxpayer money laundered through the TALF program. It then discounts the pen to $2 billion and sells it to private investors, and it lets those investors buy the pen on margin; the investors put up $200 million to $1 billion of their own money while the Fed loans them the rest by laundering yet more taxpayer dollars through the TALF or other programs. The taxpayer is sodomized twice, both coming and going.

So basically, the Fed gets to steal up to $6.8 billion for a $5 billion "asset", which means the companies involved turned a net profit of a billion or more on your tax dollars. As I recall there's $500 billion set aside for the PPIP and another $1 trillion for TALF, that's all going to the bankers.

I'm pretty sure I have this right, so I think once people start figuring this out and coming to the same conclusion, they're going to be angry, really angry.

[Dominus Atheos]

So would this be closer to what happens?