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Bailout Costs Shrink to $11.6 Trillion

Posted By Barry Ritholtz On September 25, 2009 @ 7:04 am In Bailouts,Mathematics | Comments Disabled

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 [1] — 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.

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Previously:
Big Bailouts, Bigger Bucks [2] (November 25th, 2008)

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

The Credit Crisis: The Largest Outlay In American History [3] (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 [4]
Mark Pittman and Bob Ivry
Bloomberg, Sept. 25 2009

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


Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2009/09/bailout-costs-shrink-to-11-6-trillion/

URLs in this post:

[1] $11.6 Trillion dollars: http://www.ritholtz.com/blog/2009/09/bailout-costs-to-date/

[2] Big Bailouts, Bigger Bucks: http://www.ritholtz.com/blog/2008/11/big-bailouts-bigger-bucks/

[3] The Credit Crisis: The Largest Outlay In American History: http://www.ritholtz.com/blog/2009/08/the-credit-crisis-the-largest-outlay-in-american-history/

[4] Fed’s Strategy Reduces U.S. Bailout Pledges to $11.6 Trillion: http://www.bloomberg.com/apps/news?pid=20601109&sid=aJwZIBMSGsek

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