by Nomi Prins
Big Bailout’s Second Anniversary and Multi-Trillion Dollar Pillage Leftovers
It’s been two years since the Emergency Economic Stabilization Act of 2008 spawned TARP, a tiny portion (at one time 3%) of the federal bank bailout and subsidization plan. Today, after TARP expires on October 3, 2010, the remaining potential subsidization still stands at $7.8 trillion, including $3.5 trillion to support the financial sector, $2.8 trillion behind the GSE’s, and $1.5 trillion of Main Street stimulus due to the Wall Street fallout.
TARP was accompanied by an unprecedented array of subsidies, which at one time totaled over $19.4 trillion. At the height of those subsidies, $15.4 trillion of this support was on offer to the banking sector, approximately $2.5 trillion – with no defined limit – was available to the GSE’s (not including another $6.8 trillion of implicit government guarantees), and $1.5 trillion was made available in Bush and Obama stimulus packages for citizens caught in the banking wars crossfire.
The significant drop from $15.4 to $3.5 trillion for Wall Street subsidies, is largely due to the closing of key Federal Reserve facilities, including a $1 trillion Term Asset Backed Securities Loan Facility, a $1.8 trillion Commercial Paper Funding Facility, a $900 billion Term Auction Facility (paused, not closed), a $540 billion Money Market Facility, and $3.7 trillion in Money Market Fund Treasury guarantees.
Remaining Open Subsidies Include:
- · $1.25 trillion of mortgage-backed securities purchases
- · $175 billion of GSE debt purchases
- · $300 billion of Treasury purchases (and counting)
Federal Deposit Insurance Corporation
- · $684 billion under the Transaction Account Guarantee Program
- · $293 billion of debt under the expired Debt Guarantee Program
- · $400 billion Freddie Mac and Fannie Mae back up (technically unlimited)
- · $220 billion GSE mortgage-backed securities purchases
- · $260 billion under TARP, due to expire for new extensions October 3, 2010
Some may view the end of TARP and the dramatic reduction in open subsidies as an indication that the bailout worked. Those are the same people that swear that without it, the Main Street Economy would have been so much worse than: nearly double the unemployment rate, 7.7 million new foreclosures since September 2008, and 69.9 percent more bankruptcies. If anything, it shows what over stimulating the wrong recipients does – it rewards reckless behavior – while ignoring the ramifications and comparative remedies to the greater population and general economy. That’s not a success in my book.