U.S. Taxpayers Risk $9.7 Trillion on
Bailout Programs
By Mark Pittman and Bob Ivry
http://www.bloomberg.com/apps/news?pid=washingtonstory&sid=aGq2B3XeGKok
Feb. 9 (Bloomberg) -- The
stimulus package the U.S. Congress is completing would raise the
government’s commitment to solving the financial crisis to $9.7
trillion, enough to pay off more than 90 percent of the nation’s
home mortgages.
The Federal Reserve, Treasury Department and Federal Deposit
Insurance Corporation have lent or spent almost $3 trillion over
the past two years and pledged up to $5.7 trillion more. The Senate
is to vote this week on an economic-stimulus measure of at least
$780 billion. It would need to be reconciled with an $819 billion
plan the House approved last month.
Only the stimulus bill to be approved this week, the $700
billion Troubled Asset Relief Program passed four months ago and
$168 billion in tax cuts and rebates enacted in 2008 have been
voted on by lawmakers. The
remaining $8 trillion is in lending programs and guarantees, almost
all under the Fed and FDIC. Recipients’ names have not been
disclosed.
“We’ve seen money go out
the back door of this government unlike any time in the history of
our country,” Senator Byron Dorgan, a North Dakota Democrat, said
on the Senate floor Feb. 3. “Nobody knows what went out of the
Federal Reserve Board, to whom and for what purpose. How much from
the FDIC? How much from TARP? When? Why?”
Financial Rescue
The pledges, amounting to almost two-thirds of the value of
everything produced in the U.S. last year, are intended to rescue
the financial system after the credit markets seized up about 18
months ago. The promises are composed of about $1 trillion in
stimulus packages, around $3 trillion in lending and spending and
$5.7 trillion in agreements to provide aid. The total already
tapped has decreased about 1 percent since November, mostly because
foreign central banks are using fewer dollars in currency-exchange
agreements called swaps.
Federal Reserve lending to banks peaked at a record $2.3
trillion in December, dropping to $1.83 trillion by last week. The
Fed balance sheet is still more than double the $880 billion it was
in the week before Sept. 17 when it agreed to accept lower-quality
collateral.
The worst financial crisis in two generations has erased $14.5
trillion, or 33 percent, of the value of the world’s companies
since Sept. 15; brought down Bear Stearns Cos. and Lehman Brothers
Holdings Inc.; and led to the takeover of Merrill Lynch & Co.
by Bank of America Corp.
The $9.7 trillion in
pledges would be enough to send a $1,430 check to every man, woman
and child alive in the world. It’s 13 times what the U.S. has spent
so far on wars in Iraq and Afghanistan, according to Congressional
Budget Office data, and is almost enough to pay off every home
mortgage loan in the U.S., calculated at $10.5 trillion by the
Federal Reserve.
‘All the Stops’
“The Fed, Treasury and FDIC are pulling out all the stops to
stop any widespread systemic damage to the economy,” said Dana
Johnson, chief economist for Comerica Inc. in Dallas and a former
senior economist at the central bank. “The federal government is on
the hook for an awful lot of money but I think it’s needed to help
the financial system recover.”
Bloomberg News tabulated data from the Fed, Treasury and FDIC
and interviewed regulators, economists and academic researchers to
gauge the full extent of the government’s rescue effort.
Commitments may expand again soon. Treasury Secretary Timothy
Geithner postponed until tomorrow an announcement that may invite
private investment as a way to clear toxic debt from bank balance
sheets. Measures that have been settled include a new round of
injections of taxpayer funds into banks, targeted at those
identified by regulators as most in need of additional capital,
people briefed on the matter said.
Program Delay
The government is already backing $301 billion of Citigroup Inc.
securities and another $118 billion from Bank of America. The
government hasn’t yet paid out on any of the guarantees.
The Fed said Friday that it is delaying the start a $200 billion
program called the Term Asset-Backed Securities Loan Facility, or
TALF, to revive the market for securities based on consumer loans
such as credit-card, auto and student borrowings.
Most of the spending programs are run out of the Federal Reserve
Bank of New York, where Geithner served as president. He was sworn
in as Treasury secretary on Jan. 26.
When Congress approved the TARP on Oct. 3, Fed Chairman Ben S.
Bernanke and then Treasury Secretary Henry Paulson acknowledged the
need for transparency and oversight. The Federal Reserve so far is
refusing to disclose loan recipients or reveal the collateral they
are taking in return. Collateral is an asset pledged by a borrower
in the event a loan payment isn’t made.
Fed Sued
Bloomberg requested details of Fed lending under the Freedom of
Information Act and filed a federal lawsuit against the central
bank Nov. 7 seeking to force disclosure of borrower banks and their
collateral. Arguments in the suit may be heard as soon as this
month, according to the court docket. Bloomberg asked the Treasury
in an FOIA request Jan. 28 for a detailed list of the securities it
planned to guarantee for Citigroup and Bank of America. Bloomberg
hasn’t received a response to the request.
The Bloomberg lawsuit is Bloomberg LP v. Board of Governors of
the Federal Reserve System, 08-CV-9595, U.S. District Court,
Southern District of New York (Manhattan).