Ed Brayton is a journalist, commentator and speaker. He is the co-founder and president of 
The $700 billion bailout plan is turning out to be a drop in the bucket compared to the full cost of the government's attempts to rescue the failing financial sector. Forbes reports:
For all the fury over Treasury Secretary Henry Paulson's $700 billion emergency economic relief fund, it seems downright puny when compared to the running total of the government's response to the credit crisis.According to CreditSights, a research firm in New York and London, the U.S. government has put itself on the hook for some $5 trillion, so far, in an attempt to arrest a collapse of the financial system.
Here's what that total includes:
The estimate includes many of the various solutions cooked up by Paulson and his counterparts Ben Bernanke at the Federal Reserve and Sheila Bair at the Federal Deposit Insurance Corp., as the credit crisis continues to plague banks and the broader markets.The Fed has taken on much of that total, including lending a cumulative $1 trillion in overnight or short-term loans since March to primary dealers through its emergency discount window and making a cumulative $1.8 trillion available through its term auction facility, a series of short-term transactions it began making available twice a month in January. It should be noted that a portion of the funds lent in these programs has been repaid and that the totals represent what has been made available.
The Fed also took on tens of billions in debt, including $29 billion in debt of Bear Stearns, and made $60 billion of credit available to American International Group (nyse: AIG - news - people ). It is committing $22.5 billion to set up a special purpose vehicle to manage some of AIG's residential mortgage-backed securities, and it is financing $30 billion of a second fund to hold $70 billion of multi-sector collaterized debt obligations on which AIG wrote credit default swaps.
The Treasury, in addition to the $700 billion raised in the Emergency Economic Stabilization Act, agreed to guarantee money market funds against losses up to $50 billion, will inject $40 billion of capital into AIG and is backing the conservatorship of Fannie Mae (nyse: FNM - news - people ) and Freddie Mac (nyse: FRE - news - people ), to the tune of $200 billion.
The FDIC, meanwhile, is guaranteeing $1.5 trillion of senior unsecured bank debt.
Does the phrase "we're screwed" ring a bell to anyone?
Politics
Comments
So we are now the world's biggest bank!
Posted by: MarkusR | November 17, 2008 9:41 AM
Yay to Free-market Capitalism! (and to Greenspan's "little error"!)
Can we stop this planet and let me off now? I don't like the ride.
Posted by: Umlud | November 17, 2008 9:53 AM
Well, Tina Fey was going to leave the planet if Sarah Palin was elected VP, but now she presumably won't be using her reserved space on the next offworld transport. Maybe it's still available.
Posted by: noncarborundum | November 17, 2008 10:59 AM
This is bad. Why can't we just let these companies collapse again? I mean, if it's going to induce the collapse of the economy by putting this kind of strain on the taxpayer, let them go.
Gotta love "fiscal conservative" Republicans, nationalizing all of those failing resources.
Posted by: JStein | November 17, 2008 11:01 AM
How crazy it is to suppose that the current administration is doign this in roder to leave Obama with a problem that he will not be able to solve, and then be blamed for by the next republican candidate?
Posted by: Valhar2000 | November 17, 2008 11:33 AM
Valhar, that is exactly what I have been thinking lately! It isn't crazy at all. In fact, I kind of suspect that the whole thing was fabricated to set up the Democrats for failure. It's like the GOP saw that the floor they were standing on was shaky, so they lit it on fire just before they lost it in order to be able to blame the next person for the whole thing falling through.
Posted by: Toaster | November 17, 2008 12:05 PM
$5,000,000,000,000 - and counting...
And, last I heard, this still hasn't stopped a single subprime mortgage foreclosure.
We will be forever remembered as America's Dumbest Generation.
Posted by: Pierce R. Butler | November 17, 2008 12:06 PM
Wait - you are talking about a trillion in short term loans. At what rate? That is not cost to the government in the long term if they are paid back. Which you even say is happening. In fact the Fed will likely end up making money in the end off that trillion. So I think it is not correct to call them "costs". Not that there aren't others but saying that part is, is, well lets say, disingenuous.
Posted by: Markk | November 17, 2008 12:08 PM
There's a pretty good article about "the crash" over on DKos:
http://www.dailykos.com/story/2008/11/16/1002/9542/629/660423
everyone should take a minute and read it
Don
Posted by: DonM | November 17, 2008 12:52 PM
And, last I heard, this still hasn't stopped a single subprime mortgage foreclosure.
Why should subprime (i.e. irresponsible) mortgage foreclosures be prevented? Nor should the lenders be protected.
Posted by: jayh | November 17, 2008 12:55 PM
But... but... the recession is *all* Barack Obama's fault -- he's the one responsible for causing the stock market crash and pushing the whole world into recession.
It must be true. Rush Limbaugh just told me on the radio (using his usual completely assailable logic, of course).
It's not surprising that the wingnuts are so scared of Obama. If they believe he can cause a world recession merely by flashing his smile as the Democratic candidate for president, no wonder many of them believe that Armageddon is just around the corner.
Posted by: tacitus | November 17, 2008 1:25 PM
Imagine if instead of giving that $5 trillion to banks they had divided it up among citizenry in the form of a $15,000 check to every man, woman, and child. Bet that would have helped people make some mortgage payments, purchase some automobiles, and started a number of collage savings accounts (infusing the funds into banks). Talk about an economic stimulus package! I call it trickle up economics.
It's a pleasant fantasy anyway.
Posted by: Abby Normal | November 17, 2008 1:33 PM
With that kind of money the government can just set up their own damn business and give people paychecks their own selves. Something is definitely wrong somewhere.
Posted by: 386sx | November 17, 2008 2:00 PM
For years I've heard liberals say, "We do not inherit the earth from our ancestors; we borrow it from our children." Looks like they've been proven right. But perhaps they should have been clearer that it was intended to be cautionary, not instructions.
Posted by: Abby Normal | November 17, 2008 2:59 PM
Borrowing from BBC's News Quiz:
"Capitalism is a great idea, in theory", which is not only a spoof on the communism version but equally true.
100% regulated and 100% unregulated models don't work. How about the middle way? Less extreme peaks and valleys and much better ROI.
Posted by: Erwin Blonk | November 17, 2008 3:10 PM
Gotta love "fiscal conservative" Republicans, nationalizing all of those failing resources.
More stupid blind partisanship. Half of the problems in this country would be solved already if people would just be willing to criticize the stupidity in their own party. JStein, I am assuming you are Democrat. Now, why would you not also criticize the Democrats - who hold the majority in Congress - for their role in the bailouts and nationalizations? All of them happened on their watch, and largely the only opposition to the bailouts came from Republicans. Folks, the blind partisanship has to stop. Both parties are culpable in the current mess, and the Dems are the ones pushing the hardest for the bailouts. Next bailout from the Dems will be the automakers, you watch.
Posted by: mroberts | November 17, 2008 4:10 PM
Bet that would have helped people make some mortgage payments, purchase some automobiles, and started a number of collage savings accounts (infusing the funds into banks). Talk about an economic stimulus package! I call it trickle up economics.
It also would have resulted in nasty inflation in prices for everything. Of course, that will happen anyway, it will just take a little more time.
Posted by: mroberts | November 17, 2008 4:13 PM
mroberts, that's part of why I called it a fantasy. It's ridiculous by design in order to highlight the burden this bailout is placing on us.
Posted by: Abby Normal | November 17, 2008 5:36 PM
mroberts - I find your defense of bipartisanship ironic and not at all surprising.
While you point out that the Dems in Congress supported the bail-out more than the GOP members of Congress, the root cause for this issue pushes far more responsibility for this mess at the GOP - though not all. Dems share a small minority blame and much more importantly - all of us have responsibility for encouraging social engineering of our tax code to promote ownership over renting rather than allowing a free market to make that decision as conditions change (home interest tax deductions, homestead exemption on property taxes), not to mention Investment Bankers who sold insurance policies without reserving any funds, enabled by a Republican majority who wouldn't even allow Committee hearings or debate on the floor (and signed by Clinton).
Ironic because it's par for the course for conservatives to plead for bipartisanship when they are squarely in the cross hairs with no ruling power while being the much more vicious party when responsibility is difficult to gauge and they wield power (see Karl Rove, Tom DeLay, Bill Frist, Newt Gingrich, and most importantly Dick Cheney and George Bush). My goodness, Rush Limbaugh is already trying to blame Bush's Hooverian economy on Obama.
If conservatives want credibility in the public square and less knee-jerk dismissals, we'll see more inward looking activities from them with output that argues for optimal solutions that are not consistent with past failed conservative ideas; currently I only see efforts to protect an ideology which has consistently failed every time it's put in practice.
So while I'll be the first in line to attack the Dems if they propose what I find objectionable (RFK Jr. for EPA or Interior); the GOP deserves zero respect or even consideration until they lay off the Dems and come to the table with superior arguments benchmarked to past success. While I'm not a Democrat, that party earned their victories in 2006 and 2008 and have been delegated power by the voters to try their hand.
We will see a lot of changes in the next two years, if conservatives want to participate they'll be the ones that need to come hat in hand, not moderates from either party or liberals.
Posted by: Michael Heath | November 17, 2008 5:38 PM
I've been watching this slow-motion train wreck for 28 years, aghast that no one could see the folly of Reaganomics and the government's abdication of responsibility. I think it's because they're unable to put this economic "theory" pushed by the Orange County Anarchists that inflicted Sock-Puppet Ronny on us on a personal level.
Suppose every time a salary discussion comes up, you tell your boss: "Oh, please, cut my pay! I'm not really doing anything here that is of any conceivable utility to you or anyone else, and to be honest, you'd be much better off without me!" Meanwhile, you borrow money from loan sharks at insane interest rates in order to invest in every pyramid scheme that comes along, and put your boss's name on the paperwork, so you wouldn't get any benefit from it even if it came in, which of course it never does.
Your boss refuses to let you go, because the guys who actually, you know, know what the Hell they're doing want more money. Meanwhile, his company is going bankrupt and he's losing his house, but he just can't resist that low payroll.
Run your life like this for 28 years and see where you wind up. Oh yeah: you just have to open your eyes! Too bad the Republicans poked their eyes out long ago.
Posted by: Lurkbot | November 17, 2008 5:50 PM
I have to point out that the $5T number is *not* a "cost" or even something closely resembling a cost. In fact, I'd argue that these numbers are not even very useful. If, for example, I promise to insure $100 worth of debt, I'm not "spending" $100. I'm risking $100. There's a world of difference.
Further, when the Fed loans out an extra $1T, it's not spending taxpayer money. The Fed's balance sheet has changed dramatically in the past few months to respond to this crisis. The quantity and type of debt instruments it has been buying are very different than they were this time last year, but that doesn't represent an expenditure. The Fed is simply leveraging up to provide liquidity and compensate for the deleveraging that's happening in the lending industry.
The numbers that are being piled up this article looks something like, "You add apples to shoes, multiply by Charles Dickens and then divide the whole thing by hydrogen, and it's a disaster!!!" The meaning of each of these accounts is such that they can't be combined that way. At all. It's so far off that it's not even really wrong.
Posted by: Troublesome Frog | November 17, 2008 8:39 PM
The Cobbler's Tale
http://www.smirkingchimp.com/thread/18695
Posted by: Paul Murray | November 17, 2008 9:51 PM
PaulM - when it came time for the cobbler's sons to retire, were they then 'a load of old cobblers'? - :) DJ
Posted by: DingoJack | November 17, 2008 10:04 PM
And the GOP are just now realizing that groping around can get you slapped around quite silly. Apparently, people just don't like it when you feel them up, especially once they realize that you were the one that blinded yourself.
Posted by: MercurianFerret | November 17, 2008 10:34 PM
jayh: In this space-time continuum, we have poor schools for poor people, who are thus (ahem) prime candidates for con artists. Here, it is not obligatory to punish crime victims, practical consequences of economic policies can outweigh a one-sided morality play, and it sometimes even happens that white-collar criminals are liable to prosecution.
Enjoy your visit here, but please remember that extradimensional aliens, even those transferred unwittingly from other universes, are not eligible to vote or run for office.
Posted by: Pierce R. Butler | November 17, 2008 11:32 PM
Talk about an economic stimulus package! I call it trickle up economics.
It's a pleasant fantasy anyway.
Posted by: Abby Normal
It's not a fantasy. The Australian Government is doing a small scale version of this. Not everyone is getting a handout, but parents are getting an amount ($1000 IIRC) for each dependant child, pensioners are getting something (can't remember how much), and the first homebuyers grant, which the federal gov has been handing out since the GST was introduced some years ago, has been doubled from $7000 to $14000, with an extra $7000 if you build your first home rather than buying an existing house. All up the government is spending about $10 billion on its stimulus package.
Posted by: eleanora | November 18, 2008 5:05 AM
"The Fed has taken on much of that total, including lending a cumulative $1 trillion in overnight or short-term loans since March to primary dealers through its emergency discount window and making a cumulative $1.8 trillion available through its term auction facility, a series of short-term transactions it began making available twice a month in January. It should be noted that a portion of the funds lent in these programs has been repaid and that the totals represent what has been made available."
Let's see a "cumulatice total" of $1 trillion in overnight loans over roughly 8 months works out to an average loan amount of $4 billion per day.
Presumably most of those loans have been repaid the following day.
Oh and issuing a loan guarantee is not equivalent to a cost until and unless the loan defaults.
There really is a lot of nonsense being written about the bail-out, sadly much of it is being written by people who should know better.
Posted by: Ian Gould | November 18, 2008 6:37 AM
Eleanora, yeah but the reason we can afford to do all that is because we've been running large government surpluses and have no net public debt.
The Australian government isn't borrowing a cent.
Posted by: Ian Gould | November 18, 2008 6:43 AM
Very true !
The title : "Cost of Bailout passes $ 5 Trillion", the fantasticly exagerated result of adding apples, bananas, and oranges !
Posted by: negentropyeater | November 20, 2008 5:50 AM