New Bailout Price Tag: $2.25 Trillion Dollars

15bailoutgraf01 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
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
WSJ, OCTOBER 15, 2008

Category: Bailouts, Credit, Dividends, Federal Reserve, Taxes and Policy

Crude Oil = $75

Category: Energy, Inflation, Technical Analysis

Analysts Forecasts Remain Too High

Category: Earnings, Investing, Valuation

What’s PIMCO Charging?

Category: Bailouts, Federal Reserve, Fixed Income/Interest Rates

To Regulate or Not?

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 . . .

Read More

Category: Bailouts, Federal Reserve, Taxes and Policy

Video: Nassim Nicholas Taleb

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 

See also:
Taleb’s `Black Swan’ Investors Post Gains as Markets Take Dive
Stephanie Baker
Bloomberg, Oct. 14, 2008

Category: Bailouts, Credit, Derivatives, Video

Restoring Confidence to the System

Category: Bailouts

SmartMoney’s Power 30: Investment Bloggers

Category: Media, Weblogs

Our Employees Are Our Greatest Assets

This cartoon comes to us via bankers in Zurich, who appreciate irony where they see it: via Market Observations

Category: Corporate Management, Employment

Total FOMC Lending

Category: Credit, Federal Reserve