Bailout costs $8.5 trillion

[L. Coyote]

Run time: 08:55 https://www.youtube.com/watch?v=O7Ti17PlJH8   Posted on YouTube: November 26, 2008 By YouTube Member: Views on YouTube: 0   Posted on DU: November 29, 2008 By DU Member: L. Coyote Views on DU: 1109

 

[TheEuclideanOne]

1. Can somebody answer this question?

When the original 700 Billion number was brought up, congress had to vote on it and it was a real big issue. Who would vote for it? Who wouldn't? Would we even get enough votes to pass? Politicians put their careers on the line in order to support it. Now all of a sudden, we are seeing these huge numbers that seem to be coming out of nowhere. How is it possible that the first 700 Billion brought the country to a screeching halt until it was approved, but all of these other amounts just go through without any type of approval process?

Suggestion: Instead of just telling us how much money is being spent, just tell use how much we have left. "Todays headline: You just bailed out another bank that would leave you homeless in a heartbeat if you couldn't make your mortgage. The amount is irrelevant, but we have "XXXX" dollars left"

[webDude]

3. How much money is left?!

The Federal(not) Reserve(not) Bank(not) is a private bank and it creates money as fast as it can keystroke. So, in theory, we have an infinite amount of money.

The question is, the money in your hand, what is it worth, in this case?

[TheEuclideanOne]

4. Point taken

So let me rephrase the original question. If a congressional vote was required to authorize 700 Billion, why is there no effort in giving away 10 times that amount?

[HamdenRice]

11. Here is an attempt at an actual factual answer, not a rant

The $7 or $8 trillion number tends to add up different things. It also tends to make us think of this as an expenditure rather than as federal loans and investments.

The single biggest component of that is probably the Federal Reserve purchase of commercial paper. Commercial paper is short term debt (30 days to 180 days usually) sold by corporations for short term financing. Commercial paper is, in fact, more like a check than a bond. A corporation writes a "check" for $100,000, dated 30 days from today, sells it for maybe $99,000, and the buyer comes back in 30 days and the corporation gives the buyer $100,000. In effect, the buyer has made $1,000 interest.

In normal times, the biggest investors in commercial paper are money market funds -- the accounts many people deposit their money in and use almost like a checking or savings account.

Because these commercial paper "checks" are short term and the buyer knows what's likely to happen in the next 30 days, commercial paper is (was) super safe and money market funds never lost money.

During the credit freeze, Lehman defaulted on its commercial paper, the money market funds freaked out because for the first time since forever they lost money, depositors started withdrawing money, money market funds simply stopped buying commercial paper, and corporations started laying off thousands and stopped buying inventory because they could not sell commercial paper.

The biggest chunk of what is now added up as "the bailout" is the Federal Reserve's program of buying commercial paper. I think that's between $1 and $2 trillion. The Fed already had the legal power to do this under New Deal laws. The Fed is trying to stop the waves of layoffs and freezing of inventory purchases by being the buyer of commercial paper and reestablishing the market for commercial paper. Generally, this is not an "expenditure," because the Fed gets the money back in 30-180 days, just like money market managers. If any commercial paper issuers default, even then, overall the Fed is not likely to lose money because they are making interest on most of their commercial paper purchases and getting back the principal in 30-180 days.

The money to purchase the commercial paper comes from the fact that big banks and the Treasury are required to deposit some of their money in the Fed. Because the Fed pays almost no interest on these deposits, the Fed makes money by taking it in cheap (pays no interest) but earns interest on the commercial paper. Unfortunately, though, this essentially turns the Fed into a hedge fund, taking the risk spread between its deposits and its purchases. The Fed could lose this money of the economy falls off a cliff and many, many corporations default on their commercial paper.

The next big chunk is reciprocal lending agreements between the Fed and other central banks. Because of the turmoil, trillions of dollars, Euros, China RMB, Yen and other currencies are sloshing around world currency markets. Each central bank, including the Fed, has to get currency from other central banks. I'm too lazy to look it up, but IIRC, these reciprocal currency agreements are around another $1 trillion. The Fed lending and borrowing from other central banks should not seem risky nor be considered an "expenditure," but then again the central bank of Iceland, one of the biggest players in Europe, is essentially bankrupt.

Another big chunk of the total bailout -- the AIG, Fannie and Freddie nationalizations -- were specifically authorized by Congress early in the summer.

The $750 billion TARP fund was authorized by Congress this fall. That was the big food fight over Paulson's 3 page plan that ended up being a 100 page plan. Instead of using it for TARP assets, Paulson used $250 billion to buy preferred stock in a half dozen or so of the biggest commercial banks and investment banks. He proposes using the rest to buy TARP assets and to fund purchases of other asset backed securities.

[TheEuclideanOne]

14. Thanks for the clarification, sadly I will

have to read through it a few times to truly understand it. I will try to digest it a bit and may follow up with some questions.

[ksimons]

2. words escape me, and we are only at the beginning we are told

how this could have been allowed to fester and rot under the surface of government is malpractice at the highest levels

[BelgianMadCow]

5. Recommended a trillion times

okay, just once.

[MindMatter]

6. The total domestic product for the whole country is $13Bn per year

How is it that we can give the bankers 2/3 of the GDP of the entire country and it seems to make no difference whatsoever?

Imagine the result if, instead, we would have simply given every citizen in the country a $25,000 voucher that could be redeemed for purchase of capital goods manufactured in the US. Cars, refrigerators, houses, computers, whatever. I guarantee we'd see that impact.

[L. Coyote]

8. United States — GDP: $13.13 trillion = 2006 est

United States — GDP: $13.13 trillion (2006 est.) (purchasing power parity)

According to https://www.cia.gov/library/publications/the-world-factbook/print/us.html

[MindMatter]

9. Billions, trillions ... My bad

Once again, how is it possible to give the bankers 8 trillions dollars, when our whole economy is only 13 trillion dollars a year?

[TheEuclideanOne]

10. You are assuming, of course, that the people holding

our purse strings would consider our best interest over the bank's. Give me 25K, I get my house out of foreclosure and the banks get it through me. Other business would thrive like nobody's business too. Instead, they give it to the institutions that were making these loans out of greed. The same ones that benefited from selling these insane financial devices are the ones that are benefiting.

[MindMatter]

13. Definitely. And I make a clear distinctionm between banks serving our communities

versus the ones who have been getting this 8 trillion dollars. For the most part, they are not the same companies.

If we gave you your $25,000 your local bank would then have the money if you paid down your mortgage. That bank would them be more inclined to loan to other local businesses, because they would have the funds available and your neighbors might have spent their $25,000 on a new car, furniture, a remodeling project, or other purchases that improve the local business climate.

Instead we're sitting here wondering where all the money went.

[HamdenRice]

12. "How is it that we can give the bankers 2/3 of the GDP..."?

Maybe because that's not what's happening? See post 11.

[windoe]

7. The robbery continues

it is an fing robbery, why doesn't anyone call it that?