Tallying Up the Cost

[Geoffrey]

I've lost track of how many billions of dollars of Taxpayer money have been pledged to bail out Wall Street. I suspect, however, that the number is staggering. What will be the long range effects of the orgy of spending? With a "pay as you go" Social Security System, it seems sensible to conclude that one effect will be that the well runs dry much quicker than anticipated -- pity the poor souls who DEPEND on Social Security for their retirement. Ditto Medicare care. Long overdue improvements to infrastructure will again be postponed. Public investments in education, research, the environment, etc. will also be set back. Dipping into the Taxpayer's pocket is not a magic elixer . . . money diverted to this financial crisis simply won't be available to fund other programs. Once again, we hock our future. I for one find it difficult to take much comfort in the "solutions" being created by the FED and the Treasury. They may staunch the bleeding -- but they do so at a terrible cost.

[clifp]

Despite all of the noise, with the notable exception of Fannie/Freddie I am not sure that taxpayer are really going to be hosed that badly.

In the case of Bear Sterns the Fed simple is limiting JPM loss to $1 billion. The $30 billion of Bear Sterns loans that JPM put up as collateral were all Freddie/Fan loans. The government has an implicit guarantee of these loans anyhow, and now with the take over of Freddie and Fannie that has become and explicit guarantee. So I doubt the taxpayers are any worse off.

In the case of AIG, I bet we make money. The government is borrowing money at 2% and less for short term T-bills and than loaning it to AIG at 11%. We also own 80% of AIG which has a market cap of $10 billion. As of Q2 AIG had 1,050B worth of assets vs 972B worth of liabilities leaving a postive equity of 78B. All of AIG assets are pledged as collateral of the loans, so I think short of screwing indvidual AIG policy holders the government will be first in line for all of the remaining assets.

If housing prices stopped going down tomorrow (ok unlikely) I would not be surprised if we make $40-$50 Billion. Figure the company was valued at 200 Billion or so just a year ago. I think Paulson made a Warren Buffet like deal.

As for Freddie/Fannie and the future bad mortgage corporation, I have no idea, but I imagine it will on the scale of RTC its 130 Bil lose.

[lazygood4nothinbum]

from what i've been reading tonight, it looks like the rtc bill came to about $200b in today's $s (sorry, can't put finger on source for that figure at the moment).

this bailout is projected to run between $1t & $500b, before selling assets of which, as i sadly think i understand it, no one seems to know the current or future value. so maybe there is some value there, maybe won't be much worse than rtc? maybe the world is not coming to an end? can i quit reading and go to sleep now?

[Tadpole]

It seems to me that the taxpayer has a big stake in the government getting a fair price on these assets. When I hear that the current market price might be as low as 10 cents on the dollar and the government may buy at 50-65 cents on the dollar, I get a bit concerned about the true value hidden in the assets.