Whenever I discussed the current bailout situation with people, I find they have a hard time comprehending the actual numbers involved. That became a problem while doing the research for the Bailout Nation book. I needed some way to put this into proper historical perspective.

If we add in the Citi bailout, the total cost now exceeds $4.6165 trillion dollars. People have a hard time conceptualizing very large numbers, so let’s give this some context. The current Credit Crisis bailout is now the largest outlay In American history.

Jim Bianco of Bianco Research crunched the inflation adjusted numbers. The bailout has cost more than all of these big budget government expenditures – combined:

Marshall Plan: Cost: $12.7 billion, Inflation Adjusted Cost: $115.3 billion
Louisiana Purchase: Cost: $15 million, Inflation Adjusted Cost: $217 billion
Race to the Moon: Cost: $36.4 billion, Inflation Adjusted Cost: $237 billion
S&L Crisis: Cost: $153 billion, Inflation Adjusted Cost: $256 billion
Korean War: Cost: $54 billion, Inflation Adjusted Cost: $454 billion
The New Deal: Cost: $32 billion (Est), Inflation Adjusted Cost: $500 billion (Est)
Invasion of Iraq: Cost: $551b, Inflation Adjusted Cost: $597 billion
Vietnam War: Cost: $111 billion, Inflation Adjusted Cost: $698 billion
NASA: Cost: $416.7 billion, Inflation Adjusted Cost: $851.2 billion

TOTAL: $3.92 trillion

______________________________________________________________________

data courtesy of Bianco Research

>

That is $686 billion less than the cost of the credit crisis thus far.

The only single American event in history that even comes close to matching the cost of the credit crisis is World War II: Original Cost: $288 billion, Inflation Adjusted Cost: $3.6 trillion

The $4.6165 trillion dollars committed so far is about a trillion dollars ($979 billion dollars) greater than the entire cost of World War II borne by the United States: $3.6 trillion, adjusted for inflation (original cost was $288 billion).

Go figure: WWII was a relative bargain.

I estimate that by the time we get through 2010, the final bill may scale up to as much as $10 trillion dollars…

>

UPDATE:  November 25, 23008 10:34am

A few additional details:

-Well regarded Jim Bianco did the number crunching. The easiest method is to recalculate the numbers using  CPI data.  There are other ways to depict this — such as percentage of GDP, or on a per capita basis, or in terms of costs of common items (eggs, bread, big macs, etc.).

Bloomberg calculates the total amount the taxpayer is on the hook for is $7.76 trillion, or $24,000 for every man woman and child in the country. (Data breakdown is here)

Regardless, no matter you calculate it, we are talking about an ungodly amount of money.

Category: Bailouts, Markets, Taxes and Policy

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

60 Responses to “Big Bailouts, Bigger Bucks”

  1. Gee, I wonder how it is that some think We’re being Looted, Latin-American-Style.

    I’m not sure what’s worse, that the ‘Cained Peep have little, to No, understanding of what the IMF has been doing to ‘Economies’ all over the World, or, that they, said ‘Cained ones, have no idea that that’s what’s happening here, as we speak, in the North American Union
    http://www.spp.gov/

  2. KC says:

    Maybe instead of using dollar amounts, they should use the equivalent number of Big Macs that could be bought. Then taxpayers could relate.

  3. rww says:

    An historic looting, after a decade of historic fraud. The election notwithstanding, we are imbeciles. We should take the current time as an opportunity to free ourselves of the Wall Street monster. In view of the damage it has done over and over again, the question should be what is the absolute minimum financial system needed to run the economy.

  4. Mike in Nola says:

    Marc Faber is advising people to buy physical gold and to hold it outside the US. Doesn’t sound that crazy to me with numbers like this. Anyone know of a good means for doing so?

  5. KidDynamite says:

    hey Barry – quick question about your book – weren’t you writing it even BEFORE the TARP was announced? did you just decide to hold it up to include the chronicles of all the current bailouts?

    ~~~

    BR: Its original due date was August 15th 2008. I had too beg the publisher to push it back a month, cause the market action made it clear something was brewing.

    September and October saw so many new bailouts, we pushed it back to December 5th. I will beg for 2 more weeks, but they are hot to get it to market . . .

  6. greenie says:

    I think KC is right on…the avg. person just is walking around like zombies now. I think the move to $5 a gallon gas, than the loss in their 401k/IRA just shocked them too much…The only way we can have them relate now is if KFC or Pizza Hut failed…

  7. R. Timm says:

    Barry, How did you arrive at the 4.6 Trillion number? Are you assuming that the government never gets any money paid back from any of the banks? Also that the government never receives any money as a result of the stock warrants it has been issued? The “cost” of the bailout is only knowable after the fact am I right?

    I agree with you that 4.6T is an amazingly large number that is hard to conceptualize. In my opinion that measures the scope of the bailout though not the cost to the taxpayer, which is as yet unknowable.

    ~~~

    BR: Thats already out of date!

    maximum amount / current amount
    Federal Reserve – $4.655 trillion – 59%

    Commercial Paper Funding Facility LLC (CPFF) 1,800,000,000,000 270,879,000,000
    Term Auction Facility (TAF) 900,000,000,000 415,302,000,000
    Other Assets 601,963,000,000 601,963,000,000
    Money Market Investor Funding Facility (MMIFF) 540,000,000,000 0
    Term Securities Lending Facility (TSLF) 250,000,000,000 190,200,000,000
    Term Asset Backed Securities Loan Facility (TALF) 200,000,000,000 0
    Other Credit Extensions (AIG) 122,800,000,000 122,800,000,000
    Primary Credit Discount 92,600,000,000 92,600,000,000
    ABCP Money Market Fund Liquidity Facility (AMLF) 61,900,000,000 61,900,000,000
    Primary Dealer and Others (PDCF) 46,611,000,000 46,611,000,000
    Net Portfolio Maiden Lane LLC (Bear Sterns) 28,800,000,000 26,900,000,000
    Securities Lending Overnight 10,300,000,000 10,300,000,000
    Secondary Credit 118,000,000 118,000,000

    Federal Deposit Insurance Corporation – $1.788 trillion – 22.5%

    FDIC Liquidity Guarantees 1,400,000,000,000 0
    Loan Guarantee to Citigroup* 249,300,000,000 249,300,000,000
    Loan Guarantee to Lending arm of General Electric 139,000,000,000 139,000,000,000

    Treasury Department – $1.15 trillion – 14.5%

    Troubled Asset Relief Program (TARP) 700,000,000,000 350,000,000,000
    Fannie Mae / Freddie Mac Bailout 200,000,000,000 0
    Stimulus Package 168,000,000,000 168,000,000,000
    Treasury Exchange Stabilization Fund (ESF) 50,000,000,000 50,000,000,000
    Tax breaks for banks 29,000,000,000 29,000,000,000

    Federal Housing Administration – $300 billion – 4%

    Hope For Homeowners 300,000,000,000 300,000,000,000

    Total – 100% 7,890,392,000,000 3,124,873,000,000

    * $306 billion in guarantees with C absorbing the first $29 billion in losses. Additional losses are split 90% US Gvt, 10% C. The math is 306 – 29 = 277 * .90 = 249.3

  8. Olive says:

    @R. Timm

    The number is the actual investments + all liabilities that the US Gov has engaged.

    See this link for all pledge by the US Government

    http://www.bloomberg.com/apps/data?pid=avimage&iid=i0YrUuvkygWs

    Also Mike Mish Shedlock has a good post on this:
    http://globaleconomicanalysis.blogspot.com/2008/11/bailout-pledges-hit-77-trillion.html

    Hopefully it won’t be all lost and cost to the US tax payers

  9. rob says:

    Here’s a way to conceptualize it. If you were 32 years old, you’re equivalent to a billion seconds old. Yes, that’s just a billion. Now picture 1000 – 32 year olds stuffed in a room and that’s just a trillion seconds. Where do I sign up for the March of the Machetes?

  10. Archiphage says:

    Wow… the bill for all those free lunches seems kinda steep to me.

  11. Ny Stock Guy says:

    On the upside, we should at least have fewer dead people than in WWII.

  12. Renting in Mass says:

    I agree with R. Timm. The 4.6 trillion seems to be the potential maximum cost based on outlays so far. I’m not one to defend the architects of this bailout, but much of that money is loans. Surely all of those won’t return zero dollars. Right…

  13. Archiphage says:

    I wouldn’t count on it, NY Stock Guy… The one thing government does better than waste money is kill people. That will probably be next. Besides, every schoolkid knows ‘WW II got the economy out of the Great Depression. Amen’.

  14. larster says:

    Renting in Mass-

    How much do you think we will get back from AIG? Why won’t they release the assets the Fed is accepting? Because they are toast and those remaining firms with money would short the stuff with abandon. Don’t count on getting much of this back as the reverse argument will be used- “If we have to pay this back, we will go under”.

  15. VoiceFromTheWilderness says:

    I think it’s really great that our owners have been so worried about the costs of social security all these years. Shows they are really attentive to the real value of money, and are conscientious stewards of our nations purse.

  16. VoiceFromTheWilderness says:

    while we certainly can’t know if any of these ‘loans’ will actually get paid back, it would be equally easy to make these costs much higher by showing the loss in returns from real investments. You don’t really think that giving money to bankrupt banks represents a ‘good opportunity for investment’ do you? if so, feel free to pony up your own cash.

    Speaking of hilarious falsehoods. You gotta love calling the dividend we are supposed to get on the Citi deal ’8%’. It’s 8% of 40 Billion, ‘cept-wise we are ‘backstopping’ them for 300 billion, or more. So to peopel that count their rate of return vs. their actual outlays that would be about 0.8% — at best.

  17. jmay says:

    Thanks for the perspective, BR.

    I am now appropriately terrified.

  18. samsin says:

    Shouldn’t the Iraq War be on this list? Isn’t that another $800+ billion dollar “project” (and recent too!) I’m guessing we’ll have a couple more bailouts to up the grand total here.

  19. VoiceFromTheWilderness says:

    One more thought, I see that bailing out Citi is now old news and there is a new 800 Billion plan to bail out ‘credit card, student loans, and mortgage debt’. So here’s the question: what happens when the planned bailout fails for lack of funds? What if this 4.6 trillion+ doesn’t manage to actually make it into the real world but remains ink on a page?

    I seem to be on a tear this morning…

  20. constantnormal says:

    Wow. Clearly, the lessons of the past have been forgotten.

    All the programs to prop up the nation during the Great Depression, that had limited impact and utterly failed to turn things around (I personally like the notion I first saw here, that the Great Depression finally ended because the debt overhang was eventually worked off or written down, not due to FDR’s programs or the onset of WWII) — apparently the morons driving the national economic bus have decided that the efforts to end the Great Depression suffered from a lack of imagination, and that they will bankrupt the nation in order to turn it around this time, or die trying.

    I wonder, back in the Middle Ages, how many anemics were killed by bloodletting, the most popular tool in the physicians’ toolbag back then.

    Barry, here’s another quote for your book:
    “You can always count on Americans to do the right thing – after they’ve tried everything else.” — Winston Churchill

    It seems particularly appropriate today, and will be even more so if we ever get around to trying the “right thing”, and let dead companies die, and take their toxic debt with them.

    In an economy choking from too much debt, pumping institutions and companies full of even more debt seems remarkably insane.

  21. Renting in Mass says:

    I just read about the new $800 billion plan. WTF!!!

    Why did TARP require congressional hearings, but now they can just make up new $800 billion plans on the spot?

    I hear what you guys are saying about not getting paid any of this back. I guess that’s just unthinkable to me.

  22. BKM says:

    The actual “cost” is not knowable. These are loans, guarantees and equity injections. Hopefully the economy recovers and it gets paid back. Even if it gets paid back the actual “cost” to the taxpayer will
    be significant. If it doesn’t get paid back than a dark and violent future is on the horizon. Scary thoughts.

    BR: I would rather see those numbers as a % of GDP.

  23. R. Timm says:

    Thanks for the link Olive. Diving into the numbers it looks like most of the money counted will undoubtedly be paid back. The overnight loans, corporate paper, and other liquidity measures are relatively low risk in my opinion. Even the TARP has provisions to protect the taxpayer. The only pure giveaway on the list is the economic stimulus, and that went to the taxpayers. I say worst case scenario this costs taxpayers $1 Trillion after all is said and done, and that is accounting for some expansion of the scope of the bailout.

    $1 Trillion is a real kick in the nuts to taxpayers, but 4.6 T would be castration.

  24. constantnormal says:

    @ Mike in Nola –
    As I understand things, buying physical gold has become increasingly difficult, with huge retail markups on top of a dearth of supply. In addition to the difficulties in acquiring bulk gold, there is also the risk in transporting it, and the laws impede movement of assets like that out of this country. Buying it outside the US is probably feasible, but only in a nation that does not cooperate with the IRS, which means that you will need to spend a bundle on your own private army, to protect your assets, as well as your person.

    But why use gold? I suspect that diamonds are nearly as good, as a commodity that has some extrinsic value, is easily portable, and is readily available (so far). There’s nothing magical about gold — any commodity that is scarce, has convertibility into cash, and is portable will work as well.

  25. Al Bergette says:

    As a mere work-a-day American the numbers are mind boggling. But what I find harder to grasp is how the default of something like 6 percent of whatever financial insturments have failed can crater our whole financial system.

    From what I’ve been able to ascertain, the former Congressman Phil Grahm perfected a Bill that gave Investment Banks the authority to use mechinisms that our great-grandparents outlawed because with out those pre-existing regulations it was equivelent to a heavily traveled intersection having it’s stop sign removed in one direction becaused speeding up the flow of traffic increased fuel sales and traffic without anybody saying, “Hey, maybe we should research why our forbearers implimented these restrictions before we exemt one segment/street of our economy/neighborhood from these restrictions?

    Can somebody explain how it’s possible people were allowed to make a side bet with another party that if I defaulted on my $100,000 Mortgage they would make the holder of my mortgage financially whole while they made that same bet on my defaulting on my mortgage with a 100 other people, could get away with that without SOME oversight body requiring that the bettor has adequate underlying assets to BACK (ABB) the bet if I default.

    Is the fact that many of these CDS snake-oil salesmen sold the payoff on the default of the same home mortgage over and over and over again hundreds of times over the reason there is the giant sucking sound of liquidity leaving our financial system when something on the order 94 percent of mortgages have not defaulted?

    And why is there such a lack of transparency? I wonder if it is because it’s the same stakeholders/principals of the investment banks and the CDS snake-oil guys, literally one and the same entities making money on all sides of the transaction.

    At the risk of being accused of wearing a tin-foil cap, this level of incompetent oversight and management doesn’t just happen.

    We’ve been and are being taken in a confidence scheme.

  26. ZackAttack says:

    So, we’re on the hook for up to $249B in Citi losses. That’s not TARP money.

    The plan today allocates $600 billion to buy agencies.

    Where does this money come from?

    Does anyone recall an appropriations bill for $849 passing either house? Or did I just miss that day in Civics where we learned that spending bills can originate in the Treasury?

    I mean, governments have been overthrown for a lot less than this.

  27. ZackAttack says:

    “BR: Its original due date was August 15th 2008. I had too beg the publisher to push it back a month, cause the market action made it clear something was brewing.

    September and October saw so many new bailouts, we pushed it back to December 5th. I will beg for 2 more weeks, but they are hot to get it to market . . .”

    So, turn it into a trilogy.

  28. Tim Ester says:

    Jim Cramer : Don’t Sell Bear Stearns!

    http://www.liveleak.com/view?i=2b7_1205751955

    Mar 17 08

  29. going broke says:

    “$7.76 trillion, or $24,000 for every man woman and child in the country”

    … that’s 4452.7 Big Mac meals @ $5.39 each for every man woman and child in the country.

    … that’s a 2009 Chevrolet Malibu 4-door HYBRID Sedan for every man woman and child in the country.

    … that’s 33.4 “average U. S. median monthly housing costs” for every man woman and child in the country.

    … that’s 12,766 gallons of regular gasoline for every man woman and child in the country.

    … that’s 323,944 more CEO’s at an average 2007 annual salary of $14.2 million each.

    … that’s 373,983,739 pounds of gold @ $820/0z.

    … that’s 600 months (50 years) of FusionIQ’s monthly subscribtions for every man woman and child in the country!

  30. boyson says:

    1) Trillion: I have been telling this since the US first went to owing 1 Trillion during the Reagan years.
    2) If one spends 6 Million $ per hour, 24 hours per day, 144 Million $ per day; over 700 Million $ per week;
    3) It takes over 19 years to spend just 1 Trillion $.
    4) With round the clock spending of 6 Million per hour for 19 YEARS!
    5) YIKES!
    6) What? Me worry! EJB.

  31. alexp says:

    AIG + CITI = 400,000 jobs; $500,000,000,000 of bailout money

    US Auto Industry = 3,000,000 jobs; not yet deemed worthy of $25,000,000,000

    Bankers are worth $1,250,000 per job.

    Engineers & labor are not worth $850 per job?

    Tell me why this is so? How are CIT and AIG still going concerns?

  32. DL says:

    It’ll be interesting to see what games the government plays with the deficit numbers over the next few years.

    Certainly, they’ll be using “mark-to-model” accounting for all assets that are held. And there will be a slew of off-budget items.

  33. Bruce N Tennessee says:

    I think I am finally getting the idea of how government works:

    If we were alcoholics, they wouldn’t send us to AA, they would build a still for us in the back yard.

    If we had lung cancer, they wouldn’t send us to the doctor, they buy us cigarettes.

    If we were driving too fast, they wouldn’t write us a ticket, they’d buy us a Corvette.

    If we were too fat, they wouldn’t put us on a diet, they’d buy us fast food and dessert.

    If our problems stem from too much debt and too much leveraging……well, for heaven’s sake, PLEASE KEEP SPENDING!

    Sorry, grandchildren…

  34. leftback says:

    TBT looks better every day…. in gold we trust.

  35. econteacher says:

    1944: Defense spending was 38% of GDP
    2008: 4.7 Trillion (Assuming it is all cost) is 33% of GDP

    Not quite the biggest ever, but it is certainly coming close.

  36. econteacher says:

    I encourage other % of GDP calculations as that is much better indicator of economic cost than adjusting for inflation.

  37. constantnormal says:

    @BR –

    PUL-LEASE finish the damn book while I still have money to buy a copy!

    It will do you no good to have a best-selling book and nobody with any money to buy a copy!

  38. TrickStar says:

    Yawn. So what.

  39. ButtoMcFarty says:

    Hey TruthTeller….

    got anymore of that weed??
    It must be some dynamite shit.

  40. drrayjo says:

    Hey Barry

    Just caught you over here in the UK on Radio 4.

    Great to hear someone I’ve trusted for years now making it to the mainstream.

    “Bailout is more expensive than WWII”

    Wow.

  41. mcswiggen says:

    As our trading partners find alternatives we could find our military in need of a few of those Trillions. That should send a chill up Putins ass. How about some really cool offensive weapons.

  42. Jojo99 says:

    @Bruce N Tennessee – Really liked your post on understanding government.

    ====================

    @constantnormal at November 25th, 2008 at 10:34 am said “But why use gold? I suspect that diamonds are nearly as good, as a commodity that has some extrinsic value, is easily portable, and is readily available (so far). There’s nothing magical about gold — any commodity that is scarce, has convertibility into cash, and is portable will work as well.

    I think not. Diamonds are just pieces of carbon and are becoming ever easier (and cheaper) to manufacture.

    Check:
    Diamonds on Demand
    Lab-grown gemstones are now practically indistinguishable from mined diamonds. Scientists and engineers see a world of possibilities; jewelers are less enthusiastic
    Link

    And:
    Diamond prices down by 15% in three days
    Sunday, 16 November 2008 16:53
    Link

  43. surferdude says:

    this is not a rhetorical question: exactly what have we received for $4.3t or 33% of GDP? what are bernanke & paulson trying to accomplish and how is it being measured?

  44. molecool says:

    Do any of know how much a Trillion Dollars actually is?

    1 million stacked dollar bills is .067 miles, less than a tenth of a mile. 1 trillion dollar bills would be the equivilent of eight and a half planet earths stacked on top of each other. ( 1 dollar bill is .0043 inches thick)

    One thousand times one million = one billion.
    One thousand times one billion = one trillion
    In other words. One million times one million = one trillion.

    The trillion dollar stack would be one million times higher than the million dollar stack -or- picture it this way. It would take one million stacks of one million dollar bills to equal one trillion dollars.

    If the million dollar stack is indeed .067 miles high, Then the trillion dollar stack would be 67,000 miles high. (fairly near to one third the distance from the Earth to the moon).

  45. Gunnlaugur says:

    Any chance you are counting the race to the Moon twice? Was that not on the NASA budget?

  46. mikeydoggy says:

    Yes, the proper way to look at this is either as a percent of our GDP or as a percent of household net worth (or total national net worth) and that means the $4.6 trillion is still quite modest. As a percent of total national net worth (government and non-governmental assets minus liabilities) it’s less than 4 percent. Peanuts.

  47. Jojo99,

    nice points re: Diamonds.

    also, YAG, see: http://en.wikipedia.org/wiki/Nd-YAG_laser , as a decent primer, should be familiar to anyone that has fooled around with lasers and, other, associated optics..

    as a +, YAG, the raw material is radically less expensive than, either, man-made or mined Diamonds, while delivering many of the same characteristics..
    ~~
    cn,

    much to the consternation of “Reality Denialists”, Au, and Ag, have been selected, over thousands of years, by People, through the Marketplace. Many can make long lists as to why, or why not, that should, or should not, be, but, alas, That’s what’s Up..

    The idea that Diamonds function as singular fonts of (high)intrinsic value is, probably, a top 5 example of the Power of Bernays’(most locally) insights/teachings..

  48. tkrisk says:

    PLEASE lets stop the irrationationality. The Fed is acting as a lender of last resort. The operative word is
    “lender”. Most people don’t have access to quotes from the credit markets. The FED is not spending the money it is “lending” the money to get the markets to start to valuing assets appropriately. Most journalists and bloggers have no idea how to value some of these assets so they keep faning fear. The market is behaving like everybody is going to foreclose and nobody is going to buy a house ever.

  49. Jojo99 says:

    Ha Barry! The content of this post got featured at the beginning of the Rachel Maddow show on MSNBC Tuesday evening.

  50. Juan says:

    ZackAttack: I mean, governments have been overthrown for a lot less than this.

    Perhaps government(s) was overthrown, by financial capital not by the masses.

    Time travel to the late 1970s when inflation was running and when, according to Carter advisor Stuart Eizenstat, Paul Volker was selected because ‘he was the candidate of Wall Street’. Now its fairly evident that high rates of inflation have negative impact on financial profits and in fact that sector’s profit rate had been running well below the nonfinancial. Or if we think in terms of class and class fractions, the financial fraction of the ownership class had reason to struggle for power, though its actual capture of the state seems to have been relatively gradual and more in line with the prevailing neo-liberal ideology.

    Within this context, one of public spheres that have been increasingly privatized, recent actions might be seen as the simultaneous limits to such a configuration and the all-out struggle to perpetuate it, an uncontrollability generating combination which transcends national borders.

  51. craiggers says:

    Have you ever heard of the crime off the century? Well what will we see?

    Historical comparisons aren’t really bringing it home for me.

    So each trillion dollars is $3333.33 for each and every American man, woman and child. Times 4 1/2 would be $15000.00 per each American . Is it still abstract for you? Not me. If each member of your household got a 15K check dontcha think it might perk up the economy? At least perk up your personal economy. Since you are going to be taxed into repaying the Chinese & Saudis for this loan shouldn’t you get to spend it? Instead we are letting the crooks in Washington send it to the crooks in Wall St and next a zillion other sleazy corporate officers will have their hands out too. What are they doing with all this money? The guy who drove Lehman into bankruptcy got $172 million for his bonus after that performance. Seriously, you thought the pirates were operating out of Somalia? The greatest country in the world deserves the greatest corruption of all times. Economics is really simple. Just do the math. Cue piano climax, tada!

    Slouching towards Bethlehem, the center cannot hold…

  52. junglejil says:

    Sorry to nitpick…

    When the U.S. population is taken into account (300 million today, 130 million in 1940), the cost of $4.6 trillion is $15,000 per capita, while World War Two at $3.6 trillion was $27,000 per capita.

    So, the largest expense, yes. The largest burden to each American, not really.

  53. bruceS says:

    At the level of half a WW2, which was, say, total national commitment for 3 plus years, how is reality as we know it going to be utterly changed?

  54. mikeh says:

    I think the ‘moral hazard” argument on which all this is based is essentially wrong headed during an economic crisis. Of course if the gov’t steps in and guarantees private debts and loans money to banks, investment companies or industrial corporations to prevent them from collapsing, it does have the effect of allowing some people who were responsible for making a lot of bad decisions to not bear the full brunt of those decisions. Would we all really be better off to have the US financial industry decimated, the dollar collapse, 5 or 10 major banks collapse taking with them saving and investments from thousands of companies and tens of thousands of individuals, destroying the market value of investments (after all think I read that every 1000 point decline in the Dow is the equivalent to a trillion dollars in destroyed value -value that previously was in 401 k accounts, pension fund accounts, state and local govt trust funds and other investment accounts, ngo endowment and investment trusts–) and the financial collapse bringing with it enough fall out that hundreds of major companies would close, millions more jobs would disappear and the country would go through a 5 or 10 year period of deflation and joblessness and enforced poverty while the markets ‘correct” themselves –all so that we could then see the people who putatively created the catastrophe parade around wall street in ashes and sackcloth instead of their BMWs. I guess a lot of people would be ‘morally” satisfied with that outcome– the evil are punished and the innocent perish as well, but a “taxpayer bailout’ is avoided– forget the fact that the ensuing economic catastrophe will cost the average Joe taxpayer more money than the hated “bailout” will ever nick him for. How does the taxpayer suffer from all this– sounds like we’re cutting taxes or not increasing them– sure the future taxpayers years from now may have some economic costs–but I can’t believe that the economic costs of avoiding a depression are ever greater than the economic costs of allowing one to happen.

    Besides ‘moral hazard” is a quintessentially conservative trope. It assumes that we have control over our world, knowingly and with full intent make decisions in economic affairs for which we ‘should’ bear full responsibility. You put your money in a mutual fund and it collapses— no one should be bailed out -not the fund owners because only their stupidity (not bad luck or outside events -like a war duh?) could have caused them to mismanage their fund so it collapsed–but not you and thousands of other investors either because the same argument holds for you or me. We had the responsibility to investigate our investments and t assess the risk of them. If we chose not to do that fully or couldn’t do it competently-then it’s our fault too. And moral hazard says we have to suffer so next time we will be better investors. Baloney. We have a govt to do things in emergencies we can’t do otherwise. The market can’t solve a panic without allowing for horrible crises that often exact not just economic but political and social costs as well. So gvt acts–and then liberals start calling the action a bail out and claiming that only the rich benefit? It just does not make any sense to me. In a sense we are all in this together–and I for one would rather have more of our money go to taxes knowing that the economy will still function than to have govt stand aside let the “cotton candy economy” collapse and know that we have no money -but taxes are nice and low..

  55. jc says:

    When will we know when/if US and CITI agree how to value the $306B guarantee? Until they agree on the current valuation there is no guarantee, delay is good for us (taxpayers) as the market value of the bad loans declines.

    Maybe there really was no intention to actually backstop these bad loans, they just wanted the PR

    Maybe when Bloomberg wins their freedom of information suit we’ll find out the details of the commitments Paulson and BB have been making with our money.

    Why didn’t somebody grill BB about his comment that it would be “counterproductive” for the public to know what they are doing. The sheer arrogance of that reply. OB should call for his resignation on Day 1 and then call for it publicly if he refuses

  56. Juan says:

    Mikeh,

    A mass of claims to value is not value but merely fictitious capital. The struggle to save these has more to do with trying to save a particular _form_ of capitalism, an unproductive form that has assisted in masking long-run underlying decay even while contributing to it, and by doing so necessarily contributing to its own demise.

  57. bord_du_rasoir says:

    Adjusting for inflation gives the illusion that the costs of all the government expenditures listed are properly contextualized. However, since inflation-adjusted GDP has increased some 700% from the 1947 Marshall Plan to the 2008 bailouts, simply adjusting for inflation fails to contextualize these government expenditures as well as they could be contextualized.

    Failing to account for inflation-adjusted GDP growth allows us for the dramatic conclusion that all nine of these historic government expenditures listed do not add up to the cost of the 2008 bailouts. However, by taking into account inflation-adjusted GDP growth, we find that the cost of the nine expenditures listed had almost four times the impact as a collective than the 2008 bailouts are projected to have, when we factor in each expenditure relative to the inflation-adjusted GDP at the time of the expenditure.

    The $115.3 billion cost of the Marshall Plan, for example, was a much bigger deal in 1947 than it would have been in 2007, since $115.3 billion was 7.3% of the GDP in 1947 but just 1% of the GDP in 2007. Likewise, the current bailout figure of $4.6 trillion, while an incredible 40% of the 2007 GDP, is a whopping 293% of the 1947 GDP.*

    Gov’t Expenditures Inflation Adjusted As A Percent of Time-Relative Annual GDPs:

    • Marshall Plan (1947): $115.3 billion/$1,574.5 billion GDP in 1947 = 7.3% of 1947′s GDP
    • Race to the Moon (1961-69): $237 billion/$3,191.1 billion GDP in 1965 = 7.4% of 1965′s GDP
    • S&L Crisis (1986-91): $256 billion/$6,742.7 billion GDP in 1988 = 3.8% of 1988′s GDP
    • Korean War (1950-53): $454 billion/$1,915.0 billion GDP in 1951 = 23.7% of 1951′s GDP
    • The New Deal (1933-36): $500 billion (Est)/$704.2 billion GDP in 1934 = 71% of 1934′s GDP
    • Invasion of Iraq (2003-08): $597 billion/$10,989.5 billion GDP in 2005 = 5.4% of 2005′s GDP
    • Vietnam War (1965-75): $698 billion/$3,771.9 billion GDP in 1970 = 18.5% of 1970′s GDP
    • NASA (1958-2008): $851.2 billion/$5,423.8 billion GDP in 1983 = 15.7% of 1983′s GDP

    TOTAL: 153% of annual GDP relative to year of expenditure

    • Bailouts (2008): $4,616.5 billion/$11,523.9 billion GDP in 2007 = 40.1% of 2007′s GDP**

    So, while the bailouts appear to be more impactful relative to contemporaneous GDP figures than all other expenditures, excepting the New Deal, collectively the nine expenditures listed collectively account for nearly four times the impact of the current bailout figure relative to 2007 GDP.

    *All figures are inflation-adjusted according to 2000 US$ according to the U.S. Dept. of Commerce’s Bureau of Economic Analysis (BEA).

    **My figures are imperfect because (1) I do not know to which year the figures provided by Jim Bianco have been adjusted, (2) for expenditures lasting several years, I simply selected the GDP for a median year rather than averaging the GDPs for all affected years, (3) the % figure on the 2008 bailouts will be less if a 2008 GDP estimate is used rather than 2007′s GDP, (4) the LA Purchase was excluded for lack of 1803 GDP figures, (5) I am unsure what years the $500 billion (est) figure for the New Deal covers.

  58. constantnormal says:

    One final bit of nit-picking to an EXCELLENT blog entry — did not the Race to the Moon come out of NASA’s budget? And if we sum them both together, are not we double-counting the Race to the Moon?

    This would tend to drop the accumulated worthy past expenditures totals a bit, but has no impact on the massive lunacy of our current credit wastage.

    Taking out some of the worst offenders (AIG, Freddie & Fannie, Citi, GM/Chrysler/Ford, …) and running them through streamlined reorganizations (yes, ‘bankruptcies”, shooting the stockholders and bondholders along with the terminally diseased corporations) would flush a lot of the excess debt and give the surviving companies a fighting chance at long-term survival.

    Sacrificing the rest of the economy to prop up these failing behemoths for a limited time seems like madness, and only delays and expands the eventual final accounting. No one is saved or spared by these actions. In the end, the only cure for too much unsupported debt is to eliminate it. Supporting it via printing money only spreads the pain, and the most severely inflicted will probably die anyway. Better to give them a quick, clean end and move on.

  59. idiotprogrammer says:

    To econteacher who posted on Nov 25 1:19 PM who lamely insists that because defense expenditures are a lower percentage of GDP than they were previously, here’s a response I found somewhere:

    “People who make this point about defense spending being a lower percentage of GDP than in the past are tacitly admitting that the defense budget is not about defense but about the defense industry. If the GDP doubles, does it suddenly become twice as expensive to defend the country? Of course not.”

    Percent of GDP comparisons would probably make more sense for this post however.