Counting the Cost

One of the questions that keeps popping up -- which the administration and the mainstream media (for the most part) seem to be avoiding -- is what are all these extraordinary interventions of the past several months going to cost the taxpayers (you know, the ones who are actually putting up the cash)?

Another related concern is what exactly are we getting in return for all this money we are throwing at the financial community?

Well, wonder no more. One of my favorite bloggers, Barry Ritholtz, money manager and publisher of The Big Picture, has addressed the issue head-on in "New Bailout Price Tag: $2.25 Trillion Dollars":

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 . . .

Sources:
Drama Behind a $250 Billion Banking Deal
MARK LANDLER and ERIC DASH
NYT, October 14, 2008
http://www.nytimes.com/2008/10/15/business/economy/15bailout.html

Bailout Critic: Plan Could Cost $3 Trillion
ALICE GOMSTYN
ABC NEWS Business, Oct. 13, 2008
http://abcnews.go.com/Business/Economy/story?id=6022145&page=1

Americans Embrace Big Government to Help Solve Market Crisis
Edwin Chen and Matthew Benjamin
Bloomberg, Oct. 15  2008
http://www.bloomberg.com/apps/news?pid=20601070&sid=alhCRwBpIK0U&

Devil Is in Bailout's Details
Government's $250 Billion Cash Injection Sparks Welter of Issues
DEBORAH SOLOMON and DAVID ENRICH
WSJ, OCTOBER 15, 2008
http://online.wsj.com/article/SB122398468353632299.html

Comments

[Hambone]

Hyperinflation here we come?

[roger]

People are cutting back on credit,they are loosing jobs big time
loosing pensions,they're homes are down in value,to fix this banks &
crooks get trillions for bail out compliments of tax payers.and this is good for the economy??to understand this I need a brain transplant!

[Jean Biggers Adams]

BAIL OUT, FAIL OUT
The Virtual Economy

Have you heard the latest mysterious case
Of money missing without a trace
Of millions, no, billions, no, trillions – or, zillions?

Gone is the wealth that never was there
The interest due on debtors’ dreams
From shares on castles in the air
Built from blueprints of bettors’ schemes.

NOW!
Welcome to the magic show,
Abracadabra presto change-o!
For the sacred Fed hath said
“Never mind we’re in the red
Let’s just forget about this debt.”

“We took extreme measures in our latest caper
To simulate treasures by pictures on paper.
Not to worry, we’re not sorry
You’ve lost your butt, we’ve got our cut!
You may be bust, but now must trust
In our instruction to your destruction.”

ON with the imaginary complicated deal!
(Only reactionaries remember the real.)
America now emulates the empires of old:
We gave up our freedom when we gave up our gold.

Jean Biggers Adams
October 11, 2008

[Vaughn]

I refused to play the game when everybody was borrowing money to buy things they couldn't afford, and now that the doo doo has hit the fan, I refuse to play the bailout game. The search has begun for a new home for my productive, debt free backside. I will miss the United States, but I can no longer stay here. My children and their children will not be saddled with this debt that has accrued because too many of my friends and neighbors felt entitled to live beyond their means.

I respectfully suggest that the people who created the mess clean up the mess. Don't look to me for help. I have lived the right way. I am debt free and I am gone. You who created the problem can twist. I'm not paying.