It started as a mortgage crisis and blossomed into a global economic recession. Now, the Federal Reserve, U.S. Treasury Department, FDIC, and FHA are putting all the cards on the table to fix it.
Apparently, stabilizing the U.S. economy follows that old rule that applies to starting up a business: it costs twice as much and takes twice as long as you had planned for. The tab of dollars committed to bailouts and stimulus programs is rising to staggering proportions. Do you ever wonder what your share is?
In the last year, the U.S. government has committed itself to funding a host of economic stimulus programs. According to Bloomberg, those commitments add up to a grand total of about $8.5 trillion. That sum is the joint responsibility of the Federal Reserve, FDIC, Treasury Department and FHA. Of those commitments, more than $3 trillion has been spent thus far.
Here's how Bloomberg breaks down the numbers:
- The Federal Reserve has committed $5.5 trillion and spent $2.1 trillion. These amounts relate to various initiatives aimed at the mortgage crisis and credit freeze, including the Citigroup bailout and the shotgun marriage of JPMorgan and Bear Stearns.
- The FDIC has committed $1.5 trillion and spent $149 billion to guarantee Citigroup assets, interbank loans, and prop up GE Capital.
- The Treasury has committed $1.1 trillion and spent $597 billion, not including the automaker bailout that will get tapped by GM before year-end. The Treasury's programs include the Troubled Asset Relief Program, tax rebate checks of 2008, tax breaks for banks, and a program to stabilize foreign currency exchange rates.
- The FHA has committed and tapped $300 billion to ramp up the Hope for Homeowners program.
True cost, budget deficit impact unknown
Given the nature of the various bailout initiatives, it's not possible to estimate the final true cost, or even the deficit impact of these programs. Several initiatives were structured as investments, allowing for positive returns over time. But allowing for positive returns, and achieving positive returns, are two very different things. The possibility of making a buck on these transactions, for example, seems dim:
- Citigroup bailout. Funds spent and committed far exceeded the company's current market value.
- Hope for Homeowners. The $300 billion initiative is expected to avert fewer than 14,000 foreclosures in its first year. At that rate, it seems doubtful that the resulting equity share arrangements could cumulatively cover the cost of the program-let alone heal the mortgage crisis.
Tallying your share
Since there's no consensus on the final bailout cost, you'll have to measure your share by the committed and spent amounts to date. Assuming an estimated U.S population of 305 million, your share of each is $28,000 and $10,000, respectively. That doesn't include any stimulus spending that the Obama administration might initiate. As for the total tab being twice as much as expected, let's just hope it doesn't go that high.