There is a bizarre article in this morning’s WSJ. It declares that the bailouts will cost less than initially feared. It is notable not for what it includes, but what it managed to completely ignore.
The 2008 Emergency Economic Stabilization Fund passed by Congress was over $700 billion dollars — not $250B.
There is no mention of the trillions of dollars on the Federal Reserve’s balance sheet. The ongoing costs of the Federal rescue of Fannie and Freddie — indeed, the complete takeover of $5 trillion in mortgages by Uncle Sam — is glossed over. The journal also seems to have forgotten about the cost of bailing out Chrysler and GM (they mention GM possibly going public, but just barely).
Foreclosure trends are increasing; second liens are defaulting in greater numbers. Banks now have over $30 billion in bad home equity loans. Somehow, these are not mentioned in determining the health of rescued banks.
Depleted FDIC reserves? Not mentioned. Bad loans on bank balance sheets? Ignored. FASB 157 authorizing fantasy bank accounting? Never mind.
The newly concentrated banking sector’s lack of competition is apparently too abstract for discussion. Nor does this final calculation so much as consider any future problems caused by moral hazard (its not so much as mentioned). Future inflation? US Dollar debasement? What TF are they?
Here’s the WSJ:
“The U.S. government’s rescue of wobbly companies and financial markets is starting to look far less expensive or long-lasting than once feared.
As momentum grows at companies that looked like zombies just a few months ago to repay taxpayers for lifelines they got during the financial crisis, the projected cost of the bailout is shrinking to just a fraction of previous estimates. Treasury Department officials say the tab is likely to reach $89 billion, which includes the Troubled Asset Relief Program, capital injections into Fannie Mae and Freddie Mac, loan guarantees by the Federal Housing Administration and Federal Reserve moves such as buying mortgage-backed securities and propping up the commercial-paper market.”
You can read the article, but you might notice it has a hole or two . . .
Total Bailout Costs = $89B! WTF?
Light At the End of the Bailout Tunnel
WSJ, April 12, 2010
Profit for Banks Dimmed by Home-Equity Loss Seen at $30 Billion
Dakin Campbell and David Henry
Bloomberg, April 12, 2010