On July 23, MSNBC's Morning Joe co-host Joe Scarborough continued to advance the falsehood that the "bailouts" have a price tag of $23 trillion, claiming that he "went and checked" the source of the figure, and the source was "[t]he United States Congress. That's their number."Well, no. Actually, the source was a a fellow who testified to Congress. A guy named Neil:
Neil Barofsky, the special inspector general of the Treasury's Troubled Asset Relief Program, is providing Congress with an extreme estimate in testimony he will deliver Tuesday to the House Committee on Oversight and Government Reform.I'll say. To achieve $23 trillion, you have to envision ultimate financial upfuck:
"Although large in its own right, TARP is only a part of the combined efforts of the federal government to address the financial crisis," Barofsky writes in his latest quarterly report to Congress. "Approximately 50 initiatives or programs have been created by various federal agencies since 2007 to provide potential support totaling more than $23.7 trillion."
The current balance of support provided is about $3 trillion, Barofsky says. About half of that is Federal Reserve lending; the rest includes TARP, Federal Deposit Insurance Corp. assistance and other programs.
To get to the $23.7 trillion of "total potential support," Barofsky calculates that the government's programs would have to balloon to these amounts: Fed lending, $6.8 trillion; TARP, $3 trillion; FDIC, $2.3 trillion; non-TARP Treasury aid, $4.4 trillion; and various mortgage-aid programs, $7.2 trillion.
The figures are a worst-case scenario.
It assumes that every home mortgage backed by Fannie Mae (NYSE:FNM) or Freddie Mac (NYSE:FRE) goes into default, and all the homes are worthless. It assumes that every bank in America fails, with not a single asset worth even a penny. And it assumes that all of the assets held by money market mutual funds, including Treasury bills, turn out to be worthless.Come on. We're talking about property in the United States of America. Even if every mortgage went bad, the bank would still own the property. How likely is it that all (all) of that land would suddenly be worth $0? How likely is it that all FDIC-supported banks would join the choir invisible? If every Treasury bill suddenly became worthless -- well,I'm not sure which nation would be in greater trouble, the U.S. or China.
No-one ever mistook me for an optimist, but this worst-case scenario has a vanishingly slim likelihood of ever coming true. Your time would be more productively spent fretting about virii that turn people into flesh-eating zombies. And even if the nightmare financial scenario did come to pass, you wouldn't have to worry about paying the money you owe, because money wouldn't matter anymore. Your big problem would be, y'know, making fire with sticks.
6 comments:
Yes, that's why it's called a worst case scenario, right?
Quite so. I think I remember having this exact exchange on this or another similarly preposterously large figure of monies supposedly 'spent OR guaranteed,' on this very blog a month or more back.
Several other things net a lower true figure. For one thing, 40% of the new total of deposits up to $250,000 backed by the FDIC were ALREADY guaranteed by the full faith and credit of the United States prior to any financial crisis related increases. Dollars to doughnuts, the hyped figure almost certainly includes ALL of the deposits up to $250,000, even though 40% was already covered (which is to say, not a new guarantee to the degree it had been in place for about 20 years or more).
The same is constructively true for the money market fund guarantees for those funds exclusively invested in Treasuries (a very popular safe haven for cash holdings above the FDIC guarantee limit). For those funds, the UNDERLYING investments were all fully guaranteed by the United States prior to this extension of guarantees to money market funds.
The same is more or less true for the explicit guarantees made for the mortgage holdings of Fannie Mae and Freddie Mac. They were ALREADY backstopped that way, just not explicitly so. (That's about $5.7 trillion of this exaggerated amount.)
It is also true for the part of the 'explosion' in 'spending' (on budget) caused when Obama took the war spending in Iraq and Afghanistan and put it on budget, instead of lamely and mendaciously claiming it was 'emergency spending' (off budget).
That $100 to $150 billion a year increase on budget is NOT new spending, but simply already existing spending properly accounted for as a budget item.
And, of course, these guarantees (a lot of which were very large well prior to recent events) are what SAVED huge losses from public and investor panic.
XI
Look - worst case scenario #s are always something we have to consider. As a former banker, and as someone who just needs to consider this in my own personal balance sheet, it's not a "if all goes to f--k" #." It's a worst case scenario. Worst case doesn't mean the world ends and therefore nothing matters anymore. Worst case is "this is the ultimate amount this country is on the hook for."
Even $24 trillion is an amount that the US can pay if need be. It would take a huge sacrifice - major tax increases, spending cuts, etc. but we could pay it. It wouldn't end the world. But, it IS the amount we are on the hook for if sizeable #s of people default on their mortgages, credit cards, student loans and commercial real estate. And, the $24 trillion number is not unrealistic given the likelihood of default #s over the next 5 to 10 years.
I'm just trying to say that you shouldn't think just because an IG names what seems like a huge number that means it is a doomsday scenario. It's a really really bad scenario, and one we need to take seriously, but claiming it's the end of the world is just another way to not take the burden seriously
As a sort of game, I've been trying to work out how a society would operate if all property values suddenly sunk to zero. Rent would be a lot easier. A mortgage payment of $0 would be no problem.
But what factor would determine who lives in which house? Not the amount the individual is willing to pay for that house -- because that would put us in above-zero territory.
Also, property taxes would be zero, which means the state would no longer function.
Heaven or Hell...?
You have a typo near the bottom of your article. You wrote 23 billion instead of 23 trillion.
Fixed. Thanks.
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