Bailout cost > MarshallPln+ LouisianaPurch+ moonshot+ NewDeal+ Kor Viet Iraq wars+ NASA
boingboing.net
boingboing.net
This story is so factually incorrect I am tempted to flag it. It doesn't belong on the front page. It seems that a lot of people these days get angry about the economy without having any idea what they are talking about.
Also note that 4 trillion dollars (or even 7) is less than half your gross domestic product. The United States can actually guarantee that much money. You guys are all buying houses worth more than three times your annual pre-tax income, right? In relation, this is peanuts.
There are serious issues worthy of discussion in relation to US government intervention (for instance the lack of oversight, or whether it was a good idea in the first place), but this particular comparison is lame.
Also note that no recession has cost more than a 13.0% decline in real GDP, and the median recession costs about a 1.0% decline in real GDP. These bailouts are almost certainly more expensive than the recession they aim to prevent. And that is not even considering the costs of the long-term moral hazard they create, and the costs keeping inefficient industries on government life-support.
How do you know? There is virtually no transparency aside from what it costs and where the money is being drawn from? Theoretically they can just use the money for parties and private jets, bonuses, or even purchase stock at double the market price... very sound investment indeed =)
since this is a financial institution bailout (and not say an auto manufacturer bailout) - you've already proven my point.
not to mention if you add up all of the gains and losses of previous bailouts (my math may be off so feel free to correct me http://www.propublica.org/special/bailout-aftermaths), it adds up to a net loss of 173 billion dollars (it's probably more because I don't see Amtrak on the list - and that thing continues to lose money even today)
(even if history was against me, there is still no good valid excuse for not having public transparency)
krschultz your post, a logical and valid response, was all I was asking for. I just think it's lame when someone can't come up with a good counterargument, that they just post a petty complaint as a response
It was only yesterday that many people thought that the bailout would only be a one time 700 billion dollar infusion...
Even the boingboing source glosses over this:
http://www.ritholtz.com/blog/2008/11/big-bailouts-bigger-buc...
http://finance.yahoo.com/tech-ticker/article/126117/Bailout-...
here's details of the pledged amount of money (7.4 trillion - there's a chance the post's title may not be true now but it may become reality soon): http://www.bloomberg.com/apps/data?pid=avimage&iid=i0YrU...
(it's good to note that the FDIC has a bunch of IOU notes http://seekingalpha.com/article/95129-fdic-insurance-fund-it... and money from the fed reserve is loaned to the gov with interest)
Like the bailout amount, all the expenditures were made with the expectation that the country would be better off having made them; no attempt is made to calculate the value of the social and scientific dividends of the moon landing, for example. Only up-front costs are given, which are reasonable to compare to the up-front costs of the bailout.
The claim that no attempt was made to calculate the social and economic dividends of any of the other ventures listed is a complete fallacy, there are numerous hand-waving (and a few well-researched) papers describing the long-term costs and/or benefits of each expenditure. The difference is that in the case of the other ventures there was very little known at the time about the cost of doing nothing but we can see quite clearly that the cost of doing nothing now will be far greater than the amount we are proposing to use to prop up the system.
Never mind that we may or may not get it back (although if the parties involved could measure risk accurately, we wouldn't be in this mess) -- but the bailout amount is so much that we have nothing else to compare it to other than these massive expenditures. There's no other way to get a sense of scale. If you only want to compare it to investments, the only thing I can think to compare it to is the Chrysler bailout, which IIRC we eventually made some profit on. The S&L bailout is already in the list, and we lost on that one. But both of these are orders of magnitude smaller than this bailout.
(And when I said that no attempt is made to calculate dividends, I meant within the article, not within human history.)
"If we add in the Citi bailout, the total cost now exceeds $4.6165 trillion dollars. "
These are not costs, they are guarantees. A cost is 100% sunk, no one knows exactly what percentage of these guarantees will ultimately be costs. But if it nears 50%, the bigger problem will be the number of homeless people in this country not the amount of money spent trying to prevent this from happening. And considering now a lot of mortgage companies are renegotiating and trying to prevent foreclosure, it is unlikely a lot of this money will end up being spent.
He makes no acknowledgement of that and therefore it is mis characterizing the expenses.
The bailout has an up-front cost -- an opportunity cost if nothing else. That's $4.6 trillion that suddenly cannot be used for something else, right now, regardless of the value of the assets we are purchasing.
This would solve the financial problems of the companies because, ideally, less consumers would be defaulting on loans and would continue their normal business. On the other hand, leaving consumers out of this whole deal doesn't help the taxpayers and continues to burden them to pay both debts and higher taxes.
I'm no economist, but knowing that I'll be paying for these bailouts later on regardless (through taxes), I'd rather skip the filtering through a few handfuls of failing companies and just go straight to the source. If there is some solid reasoning for this, I'd love to read about it. Everything I've read seems to just assume that bailing out the corporations is the only way, but doesnt really provide any critical discussion of why.
Brian
In the same logic, we must also hold individual consumers accountable for their own actions. Why should I, a responsible, fiscally conservative individual who has very little debt, bail out someone who's swimming in their own material extravagance, living beyond their means from credit card to credit card? Why do I, a person who has never owned a big-screen TV in my life, bail out someone who couldn't keep their wallet in their pocket despite not having the money?
Don't get me wrong, there are plenty of people who are in debt despite their best efforts - we should be helping these people, who I believe are a minority of all people in debt.
Likewise, many of the same homeowners who are getting wiped out mortgaged for a house that was well beyond their income to support. My folks had a number of opportunities during the last bubble to "trade up" - sell our house (which had appreciated massively) and trade up to something larger, so we can flip it for an even higher price later. They didn't, because they didn't believe in a free lunch, and they were perfectly happy with the house they lived in.
I despise how we are blaming banks and investors for their greed (they were greedy) but we look at all consumers as victims. Everyone is screaming for the banks' blood - let them burn for their own irresponsibility... so why can' we let consumers do the same?
Why is one better than the other?
You are wrong on the Internet. Most people in debt are in that situation because of uncovered medical bills.
The majority of "poor" people I know personally are there because of their own indiscretions.
I'm slightly wrong. It's "half", as "most" requires that the proportion be strictly greater than 50.0%. I'm off by epsilon.
Also, I meant to say "in bankruptcy"-- or, more appropriately, "in unmanageable debt"-- rather than "in debt".
Thanks to changes in governmental regulations, a lot of people got to live in houses that they couldn't afford, and banks used these mortgages as a base to loan out more money than was safe given the risk. With all the extra loan money around, we've all been enjoying a better economy than we otherwise would have, for years. And now we pay for it.
With that in mind, why are all the bailouts going to banks? Id rather we bail out no one, but if we are going to do it, there seem to be more efficient and effective means out there. Again, I'm not really making a statement as much as I am looking for a logical reason why banks are preferable to consumers.
Are you sailing the consumer bailout was the prequel to the whole situation?
Banks (and consumers!) made some dubious mortgages. Then financial services companies packaged up the mortgages into derivatives that were bought and sold on the market as investments. Suddenly, someone realized that the component mortgages were not as sure as they thought; word gets around, and everyone tries to sell off the derivatives at once. This ordinarily would not be a big problem -- investments are expected to fluctuate in value -- except a lot of banks were holding the derivatives as assets. Banks are only allowed to lend out a fraction of their assets, and the assets are valued based on the price they can be sold. When the derivative market crashed, suddenly these banks couldn't lend out any money at all.
At this point, the $700 billion plan made sense to me: they'd buy up the derivatives, propping up the market so that the banks could lend money again.
But now I don't know what's going on... It sounds like they're just giving the money directly to the banks. Which by some arguments might make more sense than giving it directly to consumers: banks make loans to businesses. If the money is given to consumers, it might eventually find its way to banks and businesses through consumer spending, but it would take a lot longer, and banks and businesses might fail in the meantime.
But it does feel like a big pie-grab, now.