On Monday, I said that the total cost of this bailout could scale up to $3 trillion — I just didn’t imagine it would happen by Wednesday.
We learned yesterday that the size of the bailout just tripled, from $750b to $3T. Here is the cost structure:
• $250 billion of capital into banks;
• Guarantee $1.5 trillion in new senior debt issued by banks;
• Insure $500 billion
in deposits in noninterest-bearing accounts (primarily businesses accts).
In exchange for this largesse, the treasury, on behalf of taxpayers, receives:
• Preferred shares that pay a 5% (rising to
9% after five years);
•No voting rights for government;
• Warrants to purchase common shares = to 15% of initial investment
All told, its a massive program that makes my earlier forecast of 2-3Trillion obsolete. New forecast is now double: $4-6 trillion dollars . . .
More details at articles below . . .
Drama Behind a $250 Billion Banking Deal
MARK LANDLER and ERIC DASH
NYT, October 14, 2008
Bailout Critic: Plan Could Cost $3 Trillion
ABC NEWS Business, Oct. 13, 2008
Americans Embrace Big Government to Help Solve Market Crisis
Edwin Chen and Matthew Benjamin
Bloomberg, Oct. 15 2008
Devil Is in Bailout’s Details
Government’s $250 Billion Cash Injection Sparks Welter of Issues
DEBORAH SOLOMON and DAVID ENRICH
WSJ, OCTOBER 15, 2008
I am working on something for The Economist — its an Oxford style debate on the current crisis. The proposition being discussed is: "This house believes that it would be a mistake to regulate the financial system heavily after the crisis."
Any comments you may have on this would be appreciated — my final version is due later today.
My biggest problem is trying to cover a lot of ground in just 500 words . . .
Nassim Nicholas Taleb angry with economists. The interviewer was just a journalist clueless about his ideas but he got them across anyway by ignoring her questions
Taleb’s `Black Swan’ Investors Post Gains as Markets Take Dive
Bloomberg, Oct. 14, 2008