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So, I am not at all an expert in finance, but there are claims (from Jill Stein for example) that the real cost of the bailout was much, much higher. Here's a

by 75j 10y ago

So, I am not at all an expert in finance, but there are claims (from Jill Stein for example) that the real cost of the bailout was much, much higher. Here's a Mother Jones article that takes this position: http://www.motherjones.com/politics/2009/12/behind-real-size-bailout http://www.motherjones.com/politics/2009/12/behind-real-size... Can someone with more knowledge break down whether or not this is accurate?

maxerickson 10y ago
The numbers used there are the size of the bailout, not the cost. If I loan you $1000 today and you pay me back $1001 tomorrow, my cost is not $1000. A whole lot of those programs look like that, short term loans or purchases of actual assets or whatnot.
TuringNYC 10y ago
@maxerickson has a valid response, but there is a larger story here. Consider hidden bailouts and also consider the unfairness of such hidden bailout. I would argue that the bailout was indeed much larger. For example, the Fed started buying distressed mortgage bonds via Quantitative Easing, QE2, and POMO. Should the Fed purchase an asset that is trading at 27 cents on the dollar for 60 cents? That seems unfair...it was a hidden bailout. Imagine you buy a house for $500,000, the value goes down to $150,000. The government, instead of paying $155,000 pays you $450,000. That sounds like an "open market transaction" but it is a gift, a bailout just by another name. Unfortunately they didn't do that with homes, they did it with mortgage bonds and CDOs, which meant that most of the gifts went to a small sector of society in lower Manhattan and around Greenwich Connecticut.
Lazare 10y ago
Those are very old numbers trying to estimate the total size of the bailout, and the total potential downside. They aren't trying to estimate the actual net cost, nor are they trying to compare it to the total potential downside of the alternatives. So it's technically right, in a sense (or it was when it was written last decade), but it isn't trying to answer the question you're asking, it's horribly outdated, and it's larded with weasel words. "[T]hese guarantees could have potentially cost the federal government more than $3 trillion..." but actually didn't. "[T]he government's potential exposure from the PPIF is between $500 million and $1 trillion..." but they ended up turning a profit on it. "As of December 21, 2009, $117.5 billion of that has been repaid..." and subsequently the rest of it was too. "The Treasury has bought $200 million in preferred stock from Fannie Mae" and then ended up quasi-nationalizing it and has since been making a hefty profit on it. And so on, and so forth. What the report shows is that the financial crisis had enormous potential price tags attached to it, but the bills never ended up coming due. Whether that was luck or skill remains to be shown. :) > the real cost of the bailout was much, much higher No. You can argue about the true underlying risks, and the proper risk adjusted interest rate to nominally charge when lending government funds to a quasi-government entity with an effective government guarantee, and the option value of the bailout, and you can argue that it, on balance, cost a few billion, or quite a few billion, or maybe even turned a profit. I think the CBO scored it at $60 billion a while back; I'd lean towards the "cost a couple hundred billion" answer, but it's ultimately too complicated a question to ever really have an answer. Especially if you try and estimate the cost compared to some other policy. :)

by 75j 10y ago

maxerickson 10y ago

The numbers used there are the size of the bailout, not the cost. If I loan you $1000 today and you pay me back $1001 tomorrow, my cost is not $1000. A whole lot of those programs look like that, short term loans or purchases of actual assets or whatnot.

TuringNYC 10y ago

@maxerickson has a valid response, but there is a larger story here. Consider hidden bailouts and also consider the unfairness of such hidden bailout. I would argue that the bailout was indeed much larger. For example, the Fed started buying distressed mortgage bonds via Quantitative Easing, QE2, and POMO. Should the Fed purchase an asset that is trading at 27 cents on the dollar for 60 cents? That seems unfair...it was a hidden bailout. Imagine you buy a house for $500,000, the value goes down to $150,000. The government, instead of paying $155,000 pays you $450,000. That sounds like an "open market transaction" but it is a gift, a bailout just by another name. Unfortunately they didn't do that with homes, they did it with mortgage bonds and CDOs, which meant that most of the gifts went to a small sector of society in lower Manhattan and around Greenwich Connecticut.

Lazare 10y ago

Those are very old numbers trying to estimate the total size of the bailout, and the total potential downside. They aren't trying to estimate the actual net cost, nor are they trying to compare it to the total potential downside of the alternatives. So it's technically right, in a sense (or it was when it was written last decade), but it isn't trying to answer the question you're asking, it's horribly outdated, and it's larded with weasel words. "[T]hese guarantees could have potentially cost the federal government more than $3 trillion..." but actually didn't. "[T]he government's potential exposure from the PPIF is between $500 million and $1 trillion..." but they ended up turning a profit on it. "As of December 21, 2009, $117.5 billion of that has been repaid..." and subsequently the rest of it was too. "The Treasury has bought $200 million in preferred stock from Fannie Mae" and then ended up quasi-nationalizing it and has since been making a hefty profit on it. And so on, and so forth. What the report shows is that the financial crisis had enormous potential price tags attached to it, but the bills never ended up coming due. Whether that was luck or skill remains to be shown. :) > the real cost of the bailout was much, much higher No. You can argue about the true underlying risks, and the proper risk adjusted interest rate to nominally charge when lending government funds to a quasi-government entity with an effective government guarantee, and the option value of the bailout, and you can argue that it, on balance, cost a few billion, or quite a few billion, or maybe even turned a profit. I think the CBO scored it at $60 billion a while back; I'd lean towards the "cost a couple hundred billion" answer, but it's ultimately too complicated a question to ever really have an answer. Especially if you try and estimate the cost compared to some other policy. :)