I stand before you chastened, a humble man who is must admit the errors of my ways.

You see, I thought the bailouts were going to be terribly expensive. Adding up all of the direct cash injections, loans, assumptions of debt, commitments, guarantees, and other obligations, I reached the unimaginable sum total of $14 trillion dollars.

As it turns, I was off by a few trillion. Thanks to the frugality of the Federal Reserve, the new total appears to now be a downright reasonable sum of a mere $11.6 Trillion dollars — a perfect bargain, an affordable expense for the new era of frugality !

“The Federal Reserve decided to keep pumping $1.25 trillion of new money into the mortgage market to focus on rescuing the U.S. economy as the financial system revives and banks ask for less help.

The Fed is allowing some of the 10 support programs it created or expanded after the credit crisis began in August 2007 to expire or shrink. That caused the first decline in the amount of money the U.S. has committed on behalf of taxpayers to end the recession, according to data compiled by Bloomberg.”

Thank goodness this turned out to be so affordable!

To put $11.6 trillion into context, lets add up some major US expenses, adjusting for inflation: Take the Marshall Plan ($115.3B), the Louisiana Purchase ($217B), the Race to the Moon ($237B), the S&L Crisis ($256B), the Korean War ($454B), the New Deal ($500B), Invasion of Iraq ($597B), (Vietnam War $698B) all of NASA ($851.2B) and WWII ($3.6T).

By way of comparison, all of that totaled $7.52 trillion dollars. Hence, the bailouts have been the greatest commitment of capital the US has ever engaged in.

To be fair, many of the Federal Reserve commitments are backed by assets, although they vary dramatically in quality. The Fed considers much of the $11.6 trillion as a form of secured loans.

I beg to differ. Since the Fed refuses to identify the collateral backing its loans — and from my own research, I can tell you they have allowed random garbage to be used as collateral — I would guess that less than 75% is truly secured. I doubt they will will see 100% return against their total loan outlay.

I hope I am wrong about this.

Regardless, the outlays for the bailouts are a truly unfathomable amount of money. We are years away from learning the true costs — in dollars, and in future dangerous behavior encouraged by rewarding recklessness and stupidity.

>

Previously:
Big Bailouts, Bigger Bucks (November 25th, 2008)

http://www.ritholtz.com/blog/2008/11/big-bailouts-bigger-bucks/

The Credit Crisis: The Largest Outlay In American History (August 7th, 2009)

http://www.ritholtz.com/blog/2009/08/the-credit-crisis-the-largest-outlay-in-american-history/

Source:
Fed’s Strategy Reduces U.S. Bailout Pledges to $11.6 Trillion
Mark Pittman and Bob Ivry
Bloomberg, Sept. 25 2009

http://www.bloomberg.com/apps/news?pid=20601109&sid=aJwZIBMSGsek

Category: Bailouts, Mathematics

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.

71 Responses to “Bailout Costs Shrink to $11.6 Trillion”

  1. Does the sarcasm come through, or is it too subtle?

  2. investorinpa says:

    Barry, on a personal note, thanks for making this info so easy for all of us to figure out. I’m not a professional stock market guy, so some of the minutae from the way the government says things can often be disregarded by my busy mind. Reading your blogpost makes it understandable and a hell of a lot more accurate than the way the Fed tries to describe.

  3. cvienne says:

    @investorinpa

    Here… I thought I’d help out even more (to fiigure it all out)…

    Ducks = bankers & central bankers

    http://www.demotivateus.com/ducks-theyll-gang-rape-your-ass-demotivational-poster/

  4. Bruce in Tn says:

    http://www.msnbc.msn.com/id/32966442/ns/business-us_business/

    China appeals U.S. win in WTO trade dispute

    ….OK…here’s the money quote, speaking of costs….er, rising costs….
    “The WTO cannot force compliance, but it can authorize countries harmed by illegal trade practices — in this case, the United States — to set higher tariffs and other measures against those failing to adhere to the rules — in this case, China.”

    ..I think the tariff train has left the station….all aboard! I think I see the waiter, he’s tired of us just eating and eating, and here comes the check…I think I’ll go to the men’s room and see if there is an open window….

  5. Bruce in Tn says:

    http://www.cnbc.com/id/33014576

    EU Slaps Anti-Dumping Duty on China Aluminum Foil

    “The European Union has decided to impose five-year anti-dumping tariffs on aluminum foil from three countries including China, and on Chinese seamless steel pipes, state media reported on Friday.”

  6. constantnormal says:

    Not to worry … the Feral Reserve apparently has a plan … it’s going to unload a lot of that toxic garbage on unsuspecting money market funds (no longer guaranteed, BTW), 401-Ks IRAs, insurance companies and pension funds.

    Hey, if packaging up junk debt and securitizing it worked with CMOs and CDOs, then it can work the same way for the Fed, right?

    http://jessescrossroadscafe.blogspot.com/2009/09/federal-reserve-considers-tapping-money.html

  7. ella says:

    Barry,

    How about an amendment to the Federal Reserve Act … making the fed liable for its own losses. The underlying policy is making this agency responsible for its actions.The Republics are always screaming about personal responsibility, so lets make it reciprocal responsibility for corps and agencies and governments.

  8. wally says:

    This is the dollar cost. It is not the long-term cost – that will be paid in slow years, jobless days and stagnation.

  9. EricTyson says:

    @investorinpa: “Barry, on a personal note, thanks for making this info so easy for all of us to figure out.”

    Barry’s next book: Bailouts For Dummies

    Barry: good presentation but…please don’t use the word “cost.” You know that loans are not costs unless the borrower doesn’t repay and they are charged off. It will be interestingly in future years to look back and total the actual costs of these various programs. Even harder would be to quantify the benefits.

    When a bank lends you money to buy a home, they don’t expense the loan do they?

    Later in this write-up, you use the phrase “commitment of capital” – that seems more accurate. Some might even say investment back I know that word would provoke a firestorm of protest among others.

  10. cvienne says:

    It seems some Americans are taking it to YOU TUBE

    http://www.youtube.com/watch?v=jGC1mCS4OVo&feature=channel_page&tag=contentMain;contentBody

    Katie Couric picked this up and this (and more videos like it are going mainstream).

  11. Vermont Trader says:

    rally built on quicksand.

    the music just stopped… quick, grab a chair.

  12. Marcus Aurelius says:

    cvienne:

    Re: Ducks = bankers & central bankers
    _________

    They won’t even give a wing-around (but they will stick you with the “bill”).

  13. HCF says:

    @Eric:

    You are partially correct about using “cost” instead of “commitment of capital.” However, remember that our government is DEEPLY indebted so that the trillions of dollars is being borrowed and not coming from reserves in our coffers. Therefore, unless we get every penny back and then some, the “investment” is definitely costing us a significant amount. Furthermore, you can view the trillions of dollars from an opportunity cost perspective. What are we NOT committing to because of the bank bailouts? Job re-training for the unemployed? Health care for all? Research into alternative energy? Paying off the national debt? There are plenty of more worthwhile causes than to bailout banksters and provide a windfall to their bonus pools…

    HCF

  14. mt says:

    Does the Fed activity really portray a cost to the government? While the Fed will buy $1.25 trillion in MBS, the taxpayer will never “pay” for that as the Fed will just print money. Is that right?

  15. ben22 says:

    I suppose the use of the term cost isn’t technically correct, at least not yet. That said, this might be worth a read to some:

    http://www.calculatedriskblog.com/2009/09/cnbc-lawler-on-housing.html

    HCF, I would throw this into your group of soemthing that is not worthwhile.

  16. dead hobo says:

    Barry Ritholtz Says:
    September 25th, 2009 at 7:10 am

    Does the sarcasm come through, or is it too subtle?

    reply:
    ———–
    Have your fun. The rest of us do when we feel like it, especially me. Just don’t forget, the world needs straight men who lob soft ball pitches and open ended gifts. I suppose this one was too glorious for you to pass up.

    Please note that the real cost is substantially less. You forget the Fed uses newly printed money and not real money. While most of this goes directly to the stock market, carry trade, and iBank bonus packages, some might someday end up as funds available to lend to main street personages. Anyway, the point is, they don’t even have to pay for paper since it’s all just finds transfer now. Therefore, the cost is basically free and not in the trillions. No real value was exchanged for this money. It’s only just a number backed by the full faith and confidence of the people in the system. Except for the fact the the Dow might be 100,000 and oil would find a new high, the world wouldn’t look any different if the Fed’s contribution was multiplied by a factor of 100. We would still be on the precipice of a big deflation.

    Also, you forget the rest is borrowed money. That doesn’t count either. Foreigners paid for it, not us. And some of that was a two step from the Fed using printed money to the buyer of debt in exchange for asset backed debt nobody else wants. This is just more monetized debt that maybe the Fed will redeem using cash from asset back securities that grow in value and someday develop a market (HA HA). Ben The Bubble’s highest and best use is using the power of the Fed to delay judgment day indefinitely using a myriad of tools they can be juggled endlessly.

    Don’t kid yourself. It’s all free money.Chill.

  17. HCF says:

    @ben22:

    Thanks for the link! I think I pointed to a similar article yesterday regarding the 40k+ cost to the government to provide 8k of tax credit… Definitely NOT a worthwhile endeavor.

    I still haven’t figured out how rising home prices are beneficial to society as a whole. I can see how it’s good for realtors, mortgage brokers, Home Depot, and perhaps local govts. for property tax purposes. For the average person, the cheaper the better… If I go to the Gap, I’d rather pay $10 for the same merino wool sweater, rather than $100. If I could pay $25k for a brand new 3-series instead of $35k, I’d gladly do it. I guess housing is always the weird consumable good/investment hybrid….

    HCF

  18. Rikky says:

    this information should cause anyone who’s an investor to pause and reconsider their strategy. any securities investment you make has some direct/indirect relationship to what the Fed has on their balances sheets and ultimately their unwinding of it. the wall street waters are not safe. there’s no escaping the size of this elephant in the room particularly when he decides to take a shit.

  19. dead hobo says:

    H Wanker and/or EricTyson:

    Did you happen to notice the Durable Goods number? Or the Backlog? To me, it looked a little punk. I know you two experts can explain it away and tell us all how the rising home sales and rising stock market make these numbers look like a minor upchuck on the way to big prosperity. Mr Wanker, please tell me again how Dow 12000 is just around the corner. Is Ben the Bubble planning to pour another barrel (tanker?) or three of lubricant over the financial markets again?

  20. cvienne says:

    @Wanger

    Are you buying RIMM down here at $70? Or did you use it all up buying it at $76 yesterday in the afterhours?

  21. Marcus Aurelius says:

    DH,

    Then, there’s this:

    Research In Motion Limited(NasdaqGS: RIMM)
    Pre-market Real-Time: 70.86 -12.20 (-14.69%) 9:11am ET

    I’m sure HW knew this at the time he purchased it (shortly after hours last night). He’s the modern day Gomez Adams.

  22. dead hobo says:

    So, which is the better name:

    Ben The Bubble

    KY Ben

    Ben “Loosey Goosey” Bernanke

    ?

  23. I’m still amazed that the Marshall Plan was ‘only’ ~115.3 Bn..

    past that, dh @ 8:58 makes a good point.

    Eric,

    w/this: “When a bank lends you money to buy a home, they don’t expense the loan do they?”

    You might do well to remember that it doesn’t matter what tricks the FASB allows ‘Banks’ to get away with. The Nature of the Schema– loaning ‘money’ into existence– is such that it comes at the Cost of all who hold and/or transact in the Currency..
    see Rikky’s post, above, @ 9:03

  24. dead hobo says:

    Re that last post,

    Ben,

    No disrespect 8O

  25. ben22 says:

    hobo,

    ha. I was going to say Ben The Bubble. What’s the matter, you don’t refer to him as your hero?

  26. ben22 says:

    @MEH,

    What do you think about the HR 1207? Any walls coming down at the Fed? If they do, that should end badly but is a major positive in the long run.

  27. cvienne says:

    @ben

    I wonder what happens when a bubble gets introduced to a helicopter?

    Hmmm…

  28. dead hobo says:

    ben22 Says:
    September 25th, 2009 at 9:31 am

    hobo,

    ha. I was going to say Ben The Bubble. What’s the matter, you don’t refer to him as your hero?

    reply:
    ———
    No, I think of him as a nice, well meaning man who keeps throwing up on my shoes while I’m wearing them. Don’t ask what he wants to clean them off with.

  29. cvienne says:

    kids, don’t try this at home!

  30. The Curmudgeon says:

    DH, B22, MEH, et al, have got it correct. The Fed has so impossibly queered up the housing market and the pixels used to support it until there is really no way of knowing what a house is worth anymore. This will end as badly as before, like I’ve said over and over again.

    These unrepentant monetarists just don’t get that changing the money doesn’t change anything real. You ought to read Kevin Warsh’s (of the Fed’s Board) piece on the challenges the Fed faces in unwinding this whole mess:

    http://online.wsj.com/article/SB10001424052970204488304574433041058334138.html?mod=WSJ_hps_sections_opinion

    His underlying premise–that the Fed saved the world from catastrophe–is, to say the least, questionable. Monetary manipulations have a very short half-life of effectiveness at doing anything other than just messing up the accounting. Aside from that, his metaphors suck. It sounds like a paper written for a first-year English comp class.

  31. DeDude says:

    You are still confusing outstanding loans with cost and I think that is a bit dishonest. The most you can stretch it to without risking your integrity is “potential cost”. The idea that none of these loans would bring in a dime is absurd.

  32. DeDude,

    try a Micro- experiment, loan 20 bucks to the local deadbeat, then see if you can sell his IOU to someone else who knows the dude.

    report your results..
    ~~
    Curm,

    good point, the Idea that the FedRes can ‘unwind’ their ‘position’ is, even, more fanciful than the position, itself..

  33. cvienne says:

    @MEH

    I’ll buy it at 1 cent on the dollar… Then sell it to Wanger at 2 cents on the dollar…

    He’ll be thinking he got a ‘bargain’!

  34. HCF says:

    @DeDude:

    You should read some of the earlier comments in this thread. Yes, it is not a “cost” in the strictest sense, other than the fact that the federal government is BORROWING every penny to fund the bailout. Those interest payments (and any associated debasing of currency) is a direct cost on you, me, and every taxpayer and future taxpayer in this country. For the program to not have “cost,” it needs to pay back everything to cover the bailout, the interest on the borrowed money, and the administrative costs in net present value terms (i.e. in today’s dollars, not tomorrow’s less valuable ones).

    More importantly, what is the cost in opportunity cost terms? Would $11.6T be better spent doing something else?

    HCF

  35. The Curmudgeon says:

    @HCF…the true opportunity cost is the reality lost to the illusions created by monetary manipulations. Do a good enough job of papering over the cracks in the foundation and there’s no way to begin fixing them because you can’t even see where they are. In the meantime, the foundation still crumbles.

  36. Mannwich says:

    Well, then! It was all worth it wasn’t it. And to think, I was all worried for nothing.

  37. advsys says:

    Oh great one. In this moment in time 11.6 Trillion. Assumes that they are done! Unlikely!!!!!!
    Lets revisit that number exactly one year from today.

  38. beaufou says:

    Well, I thought I had plague but it’s only leprosy.
    I’m gonna pull a limb off in celebration.

  39. call me ahab says:

    HCF Says-

    “More importantly, what is the cost in opportunity cost terms? Would $11.6T be better spent doing something else?”

    exactly- so many other worthwhile endeavors could have been pursued- opportunities lost

  40. Mannwich says:

    @ahab & HCF: Good point, but many of those “other worthwhile endeavors” would have been mindlessly screamed about by Glenn Beck drones and other assorted tea-bagger types who apparently have been lobotomized to the point where they cannot think clearly or for themselves.

  41. globaleyes says:

    RE: Bailouts

    Although Bailout Nation was an accurate and fun romp through our recent and still ongoing crisis, the entire catastrophe was caused by peacetime deficit spending which started on July 30th in 1965 .

  42. Mannwich says:

    Hhhhhhm, no posts from Wanger today. Already getting nervous about that RIMM purchase at “~74″?

  43. HCF says:

    @Mannwich:

    I would disagree with you somewhat on your point… If we MUST spend $11.6T, there are much more worthwhile endeavors to pursue. However, I don’t believe there is a gun to our head to spend, spend, spend. I would much prefer the bailouts NOT be done and in addition, we should retire our federal debt, shrink the size of the federal government, dismantle much of the military industrial complex, rid ourselves of corporate welfare, get rid of home-buying credits and mortgage interest tax deductions, and most of all, protect the value of our money. I strongly believe that those programs would most greatly benefit the majority of Americans. If we can get ourselves on the path to fiscal discipline, then maybe we could discuss the social programs that many want…

    HCF

  44. Mannwich says:

    @HCF: I don’t disagree at all, but it just goes to show you the priorities of this country. When it comes to throwing billions and trillions at our banking elite, the ones who caused this mess, no problem. Just go and do it even if the money isn’t there, but when it comes to doing things that would actually help the majority of the American people and the country on a whole, well, you can just forget that. We don’t “have the money”. It’s a pathetic, sick joke at this point.

  45. HCF says:

    @Mannwich:

    We’re definitely in general agreement. I find the Republicans arguing FOR the bailout and AGAINST universal healthcare particularly reprehensible. I can understand those who are against both (as I am), since that’s more logically consistent. Certainly, I don’t like socialism in any form, but socialism for the rich is particularly despicable.

    HCF

  46. HarryWanger says:

    cvienne: Took my loss at 71.10. Happy I added more AAPL though at 181.60 AH as well. That turned out well.

  47. Marcus Aurelius says:

    Harry! What are you buying today?

  48. Mannwich says:

    @Wanger: How’d that durable goods number look today? Just getting up and haven’ t looked yet.

  49. emmanuel117 says:

    Ah, more goalpost moving by HW.

  50. Thor says:

    Wanger -

    “Just wait until Thursday and Friday’s reports on home sales and durables. That should quiet quite a few critics.”

    wrong and wrong

  51. Mannwich says:

    A little advice for Wanger: this isn’t the Yahoo message boards. There are a lot of smart people here (I’m FAR down the list, believe me, and have learned a ton from everyone else) and you would be smart to at least LISTEN and pay attention to some of these folks. Blind certitude is dangerous for your health and wealth.

  52. call me ahab says:

    “other assorted tea-bagger types who apparently have been lobotomized to the point where they cannot think clearly or for themselves.”

    wow- manny- tell us how you really feel :D !!!!!!!

  53. Mannwich says:

    @ahab: I’m a little cranky and sore today after my grueling workout last night. It sucks getting old. Can you tell?

  54. HCF says:

    Seems like this didn’t post the first time….
    ———————————————————–
    @Mannwich:
    I would disagree with you somewhat on your point… If we MUST spend $11.6T, there are much more worthwhile endeavors to pursue. However, I don’t believe there is a gun to our head to spend, spend, spend. I would much prefer the bailouts NOT be done and in addition, we should retire our federal debt, shrink the size of the federal government, dismantle much of the military industrial complex, rid ourselves of corporate welfare, get rid of home-buying credits and mortgage interest tax deductions, and most of all, protect the value of our money. I strongly believe that those programs would most greatly benefit the majority of Americans. If we can get ourselves on the path to fiscal discipline, then maybe we could discuss the social programs that many want…
    HCF

  55. call me ahab says:

    HCF Says-

    “we should retire our federal debt, shrink the size of the federal government, dismantle much of the military industrial complex, rid ourselves of corporate welfare, get rid of home-buying credits and mortgage interest tax deductions, and most of all, protect the value of our money.”

    Right on HCF- you are a Libertarian!!!!- and my write in candidate in 2012-

    dude- succinct- and absolutely correct imo-

    MEH will probably weep with joy after reading your quote

  56. Mannwich says:

    Sorry, HCF. Hadn’t had my second cup of coffee before reading your post again. Mea culpa. We’re basically on the same page.

  57. HCF says:

    @ahab:

    Thanks for the compliment! I could never run for public office, though…. I’d be painted as a wacko, nutjob, which, I guess, outside of Big Picture circles, I am =)

    HCF

  58. HCF says:

    @Mannwich:

    It’s all good =)

    HCF

  59. HarryWanger says:

    I was wrong on the Durables number and housing. I really factored in a lot of variables and couldn’t see the Durables number under 1%.

    Anyway, I’m out of the quick RIMM trade. Added AH to the AAPL trade. Waiting to see if COMP can get down to 2060. That would be my trigger at the 4% pull back area to add.

  60. DeDude says:

    HCF; I have no doubt that there will be an actual cost in the end. If housing gets the severe second dip that it is now lining up for, then the cost could be a substantial fraction of that 11.6 trillion figure. But there is no basis for a headline that states a “cost” of that much. Nobody knows the exact final cost, but that doesn’t give you a license to just pull a number out of you’re a$$, unless you are from Fox news or a GOP senator.

  61. dead hobo says:

    HarryWanger Says:
    September 25th, 2009 at 11:58 am

    I was wrong on the Durables number and housing. I really factored in a lot of variables and couldn’t see the Durables number under 1%.

    reply:
    ———-
    Mr Wanker, if the economy is providing bad numbers and it does not provide the promise of better numbers in the near future, and the Fed is winding down it’s stimulus, why should the stock market continue to rise? Where’s the economic growth coming from? Even consumer staples drop like a stone when everything else is going down. Let me guess. You have blind faith and believe everything the sales pundits tell you.

  62. [...] Bailout Costs Shrink to $11.6 Trillion | The Big Picture. To put $11.6 trillion into context, lets add up some major US expenses, adjusting for inflation: [...]

  63. ben22,

    sorry, missed your Q:

    I think H.R. 1207 is a good start.

    w/this: “The Curmudgeon Says:

    September 25th, 2009 at 10:23 am
    @HCF…the true opportunity cost is the reality lost to the illusions created by monetary manipulations. Do a good enough job of papering over the cracks in the foundation and there’s no way to begin fixing them because you can’t even see where they are. In the meantime, the foundation still crumbles.”

    Curmudgeon state the simple Truth of the matter..to me, if people know, and accept, it and, then choose to go fwd:, then, fine..

    somehow, maybe I haven’t been fully disillusioned, I don’t think peep, knowing the Reality of the Scene, would continue to sally forth w/o breaking stride..

  64. [...] “(T)he outlays for the bailouts are a truly unfathomable amount of money. We are years away from learning the true costs — in dollars, and in future dangerous behavior encouraged by rewarding recklessness and stupidity.”  (Big Picture) [...]

  65. ToNYC says:

    Bernanke should have been a student of the Japanese 1989-2009 era instead of the Great Depression where we were just leaving the hard brake gold standard..this one began and since August 15, 1971 with the shifting sand dunes of floating Forex. To wit: when we chortled about how the Japanese housewives were trading Forex in the carry-trade..borrowing Yen at zero interest/renting Yen and buying the Aussie and getting Aussie 7% interest in an appreciating currency while their Yen was available for free “for a protracted duration” to be paid back later, little did we know we’d be treated to a genius scholar from Princeton who was not an expert on this more recent slice of history.

  66. cvienne says:

    @ToNYC

    “Bernanke should have been a student of the Japanese 1989-2009 era instead of the Great Depression”

    Precisely! I was expressing the exact same thought the other day…

  67. Robert M says:

    It’s almost humourous. You predicted it only being the value of GDP for 2007 in this country. Can’t you wait till only 15% of the nomicnal values of CDS written globally come due and everyone realizes we are the only country permitting this nonsense. 15% is only 21 trillion in 2007 numbers.
    You are now permitted to being scared.

  68. Christopher says:

    I look at this like the guy who gets a terminal cancer diagnosis from his doctor so decides the smartest thing to do is obtain as much credit as possible and go on the spending sprees to end all….

    I think the country is being driven to bankruptcy by people who know EXACTLY what they are doing.

    What other reasonable explanation is there for this madness?? The only real alternative is that our leaders are ABSOLUTE IDIOTS and they actually think they are doing the right thing.

    Either way…..we’re fucked.

  69. Paul S says:

    dead hobo,

    What you are suggesting is that the actual value of everything in this country is declining quite quickly.

  70. flipspiceland says:

    I’m trying to figure out if you for the FED on one day and against it the next.

    You have several times said that Bernanke is doing a good job.

    Which is it?

    Do you “….. contain multitudes”?

  71. [...] (Our thanks to Barry Ritholtz where we got the numbers for this quiz from his blog post.) [...]