How is it that anyone can claim with a straight face that the government will likely make money from its various bailout investments? We suspect that anyone saying this is completely out of touch with the size of the losses, bailout funds and emergency lending programs. Because if you add those up, as Bloomberg did today, they amount to more than $7.4 trillion dollars. And it’s growing.
Where’s all that money coming from?
- $2.4 trillion in commercial paper purchases by the Fed.
- $2 trillion in other loans and pledges from the Fed.
- $1.4 trillion in rescue committments, including higher deposits insurance. Bloomberg explains: “The FDIC, chaired by Sheila Bair, is contributing 20 per cent of total rescue commitments. The FDIC’s $1.4 trillion in guarantees will amount to a bank subsidy of as much as $54 billion over three years, or $18 billion a year, because borrowers will pay a lower interest rate than they would on the open market, according to Raghu Sundurum and Viral Acharya of New York University and the London Business School.”
- $892 billion for the Treasury’s TARP and other Hank Paulson rescues.
- $300 billion from FHA to guarantee mortgages through the Hope for Homeowners program, designed to keep distressed borrowers from foreclosure.
- $444 billion bailout bucks for Sheila Bair’s mortgage program. Bloomberg: “Not included in the calculation of pledged funds is an FDIC proposal to prevent foreclosures by guaranteeing modifications on $444 billion in mortgages at an expected cost of $24.4 billion to be paid from the TARP, according to FDIC spokesman David Barr. The Treasury Department hasn’t approved the program.”
So with the housing modification plan, that’s $7.8 trillion.
Does anyone believe that it is even possible to calculate your expected return on a $7.8 trillion investment? Of course it’s not. That is several times the total profits of the entire economy.
Think about it this way: banks have to make all that money just to pay us back. Do you really think that’s going to happen?
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