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How Much Has the Bailout Cost?

By Big Tent Democrat

As the Establishment Media and the Establishment blogs intersect, I was struck by this screaming headline at TPM:

Pricetags for Bailout So Far: 2.8 Trillion

That headline is bolstered by a post by David Kurtz that states $7.4 trillion has been spent on bailouts. The link goes to this Bloomberg story. What does that story say?

The U.S. government is prepared to lend more than $7.4 trillion on behalf of American taxpayers, or half the value of everything produced in the nation last year, to rescue the financial system since the credit markets seized up 15 months ago.

The unprecedented pledge of funds includes $2.8 trillion already tapped by financial institutions in the biggest response to an economic emergency since the New Deal of the 1930s, according to data compiled by Bloomberg. The commitment dwarfs the only plan approved by lawmakers, the Treasury Department’s $700 billion Troubled Asset Relief Program. Federal Reserve lending last week was 1,900 times the weekly average for the three years before the crisis.

(Emphasis supplied.) $2.8 trillion already tapped? I simply do not believe that is true. And a review of Bloomberg's math proves it is not true:

Bloomberg News tabulated data from the Fed, Treasury and Federal Deposit Insurance Corp. and interviewed regulatory officials, economists and academic researchers to gauge the full extent of the government’s rescue effort.

The bailout includes a Fed program to buy as much as $2.4 trillion in short-term notes, called commercial paper, that companies use to pay bills, begun Oct. 27, and $1.4 trillion from the FDIC to guarantee bank-to-bank loans, started Oct. 14.

Let's stop for one second - is Bloomberg reporting that the Fed has bought $2.4 trillion of commercial paper? If so, that is front page news. I believe it is not true. Instead, I believe the truth is the Fed has the authority to purchase $2.4 trillion worth of commercial paper. But the fact is that the total outstanding amount of commercial paper is $2 trillion (and of that amount only $1.3 trillion is eligible for purchase by the Fed.) How is it possible that the Fed bought more than 100% of available commercial paper? And by the way, when commercial paper is redeemed, as most of it is over a short period of time, does that still count as "money spent on the bailout?"

So it is fun to run screaming headlines, but does it really tell us the truth? Not really. More from Bloomberg's own article:

William Poole, former president of the Federal Reserve Bank of St. Louis, said the two programs are unlikely to lose money. The bigger risk comes from rescuing companies perceived as “too big to fail,” he said.

Indeed. There is enough to worry about without engaging in bad scare tactics reporting. Remember, at the end of the day, the Republicans will use these scare headlines to try and block Obama's stimulus package. Here is Digby on how Neil Cavuto used these ridiculous figures for just that purpose:

Neil Cavuto and Ben Stein got into a screaming match over the state of the economy after the bailout Saturday morning on Fox's Cavuto for Business. I've never seen them go at it like that before. It started immediately when Cavuto opened up the segment by saying we've spent 2 trillion dollars so far to fix the problem, which is patently false, and Stein called him out on it. (rough transcript.)

Stein: The $2 trillion dollar number you cited at the beginning is a completely made up number, I don't know where you got it from.

Cavuto: What do you think it is?

Stein: Closer to $300 billion...

Cavuto: Oh, no, no, no, Ben I gotta stop you there... When you are supporting one institution after the other ...

. . . Stein: The Federal government is the only one that can stabilize this economy.

Cavuto: It is a slippery slope Ben...

Stein: Then otherwise we fall into a great depression. Maybe not a problem for you, but a problem for everybody else.

Cavuto: Oh, stop the nonsense.

Stein: It isn't nonsense.

Cavuto: Where do you draw the nonsensical line.

Stein: We go in for as much Federal stimulus as it takes keep us out of a great depression. That is basic common sense ... We need to bail out the auto companies, we need to have a massive stimulus package. This economy is about to fall off a cliff. We need major stimulus.

On the number spent, the Bloomberg story TPM relies upon for its screaming headline says:

The government committed $29 billion to help engineer the takeover in March of Bear Stearns Cos. by New York-based JPMorgan Chase & Co. and $122.8 billion in addition to TARP allocations to bail out New York-based American International Group Inc., once the world’s largest insurer. Yesterday, Citigroup Inc. received $306 billion of government guarantees for troubled mortgages and toxic assets. The Treasury Department also will inject $20 billion into the bank after its stock fell 60 percent last week.

By my math, that is $171 billion in outlays and $306 billion in guarantees (and that number is wrong by the way (the guarantee is about $270 billion.)

Here's my point - fact based reporting is essential now - especially given what President Elect Obama is planning to do (and what I believe he has to do) - spend a ton of money to stimulate the economy. REAL spending - not "guarantees."

And financial reporting is especially bad. See Brad DeLong on this subject.

By Big Tent Democrat, speaking for me only

Full post as published by TalkLeft on November 24, 2008 (boomark / email).