Posts filed under “Mathematics”

Bailout Costs Shrink to $11.6 Trillion

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

09/09/09 9:09:09

> Right now, its the 9th second of the 9th minute of the 9th hour of the 9th day of the 9th month of the 9th year of the century. You may now return to your prior activities . . . >

Category: Mathematics

Bailout Profits? Don’t Make Me Laugh!

“The government has taken profits of about $1.4 billion on its investment in Goldman Sachs, $1.3 billion on Morgan Stanley and $414 million on American Express. The five other banks that repaid the government — Northern Trust, Bank of New York Mellon, State Street, U.S. Bancorp and BB&T — each brought in $100 million to…Read More

Category: Bailouts, Mathematics

BiModality of Markets: Why Mean-Variance Doesn’t Work

Via Bob Bronson, we get this very interesting way to think about the potential universe of market returns: In addition to the almost universally improper use of the correlation function that we have presented before (our Correlation Puzzle is available on request), Alpha-Beta, Efficient Frontier, Black Scholes, VaR, stochastic modeling, and exotic derivatives from Modern…Read More

Category: Mathematics, Think Tank

Quote of the Day: Better Earnings

Stephanie Pomboy of MacroMavens observes: “Judging by the giddy delight investors have taken in ‘better’ earnings news over the last two weeks, we expect they will positively wet themselves when they get a load of the new saving stats.  I mean the prospect that dis-saving was never as bad… and that current saving is even…Read More

Category: Earnings, Mathematics

GDP Worse, Not Better,Than Expected

Bill King notes in the Think Tank that GDP was actually worse than consensus expected. How is a minus 1% worse than a minus 1.5% ?  He looks at the first half of 2009, and blames the Q1 revisions: “We will again utilize basic math to illustrate the scam. If Q4 08 GDP was 100…Read More

Category: Data Analysis, Economy, Mathematics

King Report: GDP Follies

> The GDP report last Friday evinces the folly of US government economic statistics and Wall Street consensus analysis. Most of the Street heralded the 1% decline in Q2 GDP because it was 0.5 better than consensus – even though the US government admitted in the release that its GDP estimates over the past several…Read More

Category: Data Analysis, Economy, Mathematics, Think Tank

Challenge to Jim Cramer: Let’s Talk About Banks!

I notice that Jim Cramer is yowling on TheStreet.com today, pounding the table on US Bancorp (NYSE:USB) and Webster Savings Bank (NYSE:WBS).  Jim, how much you want to buy?  These institutions are going to be shoveling money into the furnace for another 3-4 quarters.  We’ll have a post up on TBP tomorrow on our view…Read More

Category: Investing, Mathematics

FASB Discovers Own Cojones

Make that belatedly. America’s previously neutered accountants — traditionally, green-visored chickenshit-cowards who have rolled over for their belly rubs from America’s CEOs and CFOs, giving them all of the bullshit they asked for over the past 2 decades — seem to be developing a spine of sorts. Recall that in the midst of the credit…Read More

Category: Earnings, Mathematics, Regulation

Overstating Bailout Costs

“The total potential federal government support could reach up to $23.7 trillion.” -Neil Barofsky > Yesterday, we noted that the 23 Trillion dollar bailout was a “WTF number.” The statement above really turns on your definition of the word “Support” — this is not the actual costs, but more of a measure of the total…Read More

Category: Bailouts, Mathematics