Friday, October 01, 2010

Talbott: TARP Uncovered -- the Real Cost of the Government Bailout

John Talbott (a guy who called the housing bubble (wrote two books on it) and the financial crisis is a little upset with the New York Times article this morning that essentially gives TARP a pass. What follows is Talbott's tally of bailouts:

Estimated Total Costs of Bailout

Fannie and Freddie bailout = $700 billion estimated, at least, on their $5 trillion portfolio.

Federal Reserve's increased printing of money to fund purchase of mortgage securities in market and bad assets from banks (which directly leads to an equal amount of inflation, a hidden tax on consumers and savers) = $2 trillion.

Eventual FDIC losses = $500 billion.

Credit union guarantees = $50 billion.

Present value cost of lost interest income to US retirees and other savers due to government's zero interest rate policy = $2 trillion.

Present value cost of additional high unemployment and lost wages caused by government's focusing on bank and Wall Street profitability first, rather than on job creation = $5 trillion.

Total loss in housing values due to inappropriate response to overbuilding and high foreclosure problem = $4 trillion (a fraction of the total housing value loss of10 trillion, much of which was necessary to return to non-bubble levels).

Cost of future bad loans created since 2008 by Fannnie, Freddie and FHA by continuing to lend aggressively into declining real estate markets = $300 billion.

Wasted stimulus money (Where exactly did this money go and what do we have to show for it?) = $300 billion.

Total estimated cost of government bailout = $14.85 trillion.

This is more than an entire year's economic output for the entire country. It is as if we Americans worked an entire year for free to pay for our government's inappropriate response to this crisis.