TV Runs Wild With Insane Bailout Cost Estimate
When you hear something that sounds like nobody could possibly be so crazy as to do it, one thing worth considering is that possibility that nobody is actually doing it. Thus when you find yourself, as Politico did, with the headline “Bailouts could cost U.S. $23 trillion” it’s worth asking: Really? $23 trillion? The total value of all goods and services produced in the United States is $13.8 trillion. So pretty clearly the government could not, in fact, spend $23 trillion on bailouts. As Pat Garofalo explains, the number $23 trillion is the result of an extremely crude tallying method, “To arrive at $23 trillion, Barofsky simply added together every financial rescue program that has been proposed, including those that were discontinued or never even started.”
In particular, it involves totaling up the nominal value of every single loan guarantee. Think back to before the financial crisis. You could have totaled up the value of every single FDIC insured bank account in the United States and come up with a fantastical sum that deposit insurance “could” cost the American taxpayer. In the real world, however, a big part of the point of these guarantees is precisely to prevent runs and make failure relatively unlikely. Universal failure is not going to happen. Floyd Norris breaks it down:
It also assumes that every home mortgage backed by Fannie Mae or Freddie Mac goes into default, and all the homes turn out to be worthless. It assumes that every bank in America fails, with not a single asset worth even a penny. And it assumes that all of the assets held by money market mutual funds, including Treasury bills, turn out to be worthless. It would also require the Treasury itself to default on securities purchased by the Federal Reserve system.
On the one hand, there’s no way for this to happen. On the other hand, were it to happen there would be no way to pay. And on the third hand, the money would be worthless anyway so who cares? As Pat observes, none of this stopped cable news from running with an alarmist story:
I got into writing about politics because I like the idea of trying to improve people’s understanding of the issues. I wonder sometimes what gets people who cover politics on TV motivated.
49 Responses to “TV Runs Wild With Insane Bailout Cost Estimate”
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July 21st, 2009 at 3:19 pm
$ + ego
July 21st, 2009 at 3:22 pm
Matt, this is one of the few *good* things about how our media works.
$23 Trillion is going to scare the shit out of people and maybe even force Congress to address the shit that led us into this mess.
July 21st, 2009 at 3:27 pm
…”I wonder sometimes what gets people who cover politics on TV motivated.”
High ROI. Return (of the viewer) on I(nanities).
July 21st, 2009 at 3:33 pm
It’s also good to shout “FIRE!” in a crowded movie theater if you’re in a hurry to leave. A scared American is a smart American.
July 21st, 2009 at 3:36 pm
Lou Dobbs?
I heard there were 23 trillion cases of leprosy in America last year.
*snort*
July 21st, 2009 at 3:43 pm
Yeah, that’s crazy, it could never happen. Housing values have never gone down across the country. Terrorists have never crashed planes into the World Trade Center. America has never lost a city to a hurricane.
The total value of all goods and services produced in the United States is $13.8 trillion. So pretty clearly the government could not, in fact, spend $23 trillion on bailouts.
Some of that money could be owed to other countries … in fact, a lot of the Freddie/Fannie stuff is.
I don’t actually think we’ll lose $23t when all is said and done. But it’s going to be a hell of a lot. This is not an area where optimism will serve us well.
July 21st, 2009 at 3:50 pm
Wait, so is $23 trillion the total amount of debt held in America then? That’s kind of good to know.
July 21st, 2009 at 3:58 pm
Of course we see this exact same thing in the comments here all the time, so it isn’t just the people on TV. Basically, anyone who wants to be as dramatic as they can about all this (and TV “news” is actually entertainment, which is why that description fits) is going to be strongly tempted to use this device to inflate the numbers.
July 21st, 2009 at 3:58 pm
Wait, so is $23 trillion the total amount of debt held in America then? That’s kind of good to know.
No, read the post. $23 trillion includes, for instance, the value of every bank account covered by the FDIC, so in theory if every bank in the country failed, the FDIC would have to reimburse every single person in the country for the value of their account. That’s not debt, that’s a potential insurance payoff. But under any possible scenario where that would occur the economy has completely collapsed and our currency is valueless. The $23 trillion is a completely meaningless number designed entirely for shock value.
July 21st, 2009 at 4:02 pm
$23 Trillion is going to scare the shit out of people and maybe even force Congress to address the shit that led us into this mess.
Not really. It’s been proven time and time again people don’t understand orders of magnitude and large numbers. It could just as easily be $5 trillion or $80 trillion and the reaction would be the same: “wow, that’s a massive amount of money.” And everyone already knew a massive amount of money was spent stabilizing the economy.
As for anyone who actually does understand large numbers and the economy, they’re going to see that figure and immediately laugh at it. When I saw the headline I didn’t even bother reading the article because it was obviously completely nonsensical, so I figured I’d just wait a day for all the rebuttals of the author’s obviously faulty logic.
July 21st, 2009 at 4:03 pm
Are you talking about the fake stimulus, or the real stimulus? Same arguments apply either way.
July 21st, 2009 at 4:04 pm
Unfortunately, Adam, you’re probably right
It’s not like Calculated Risk – and in particular the much missed Tanta’s UberNerd – is beamed into people’s heads
July 21st, 2009 at 4:05 pm
Pension funds are supposed to do accounting on this basis, so I don’t think it’s out of bounds to tally up the theoretical obligations we have incurred. It does illustrate just how absurd this “too big to fail” theory has gotten.
It’s truly amusing to watch the Democrats and Progressives morph into the best friends of the huge companies.
July 21st, 2009 at 4:07 pm
Actually, there is NO LIMIT on the amount of debt the US Congress can dump onto the American people.
And if that debt is bullshit, then why does almost $1 Trillion of our taxes EVERY YEAR go to pay INTEREST to wealthy bondholders instead of to providing healthcare to US citizens who do not have it?
Again you have the example in which Democrats ENABLE Republican reckless irresponsibility by saying “IT’s not a problem”. Like some timid wife with a black eye assuring her kids that daddy didn’t really just leave the house to go to the local bar.
Pathetic.
July 21st, 2009 at 4:08 pm
Adam: And if anything, I think it would have a rather negative policy effect from a progressive point of view. It won’t make Congress fix the problems that led to the bailouts, because that is hard that requires careful thinking, something not easily driven by panic and rage. But what it will do is greatly increase the resistance for any new stimulus packages, or for that matter, any new spending at all. If we’re already spending a zillion bajillion dollars on the bailouts, then clearly we can’t afford Universal Health Care.
July 21st, 2009 at 4:10 pm
When the last three Republican presidents ran up $9 Trillion in debt, does anyone recall Democratic Senator Ben Nelson saying that we could not afford it?
When Bush stole $3 Trillion out of our Social Security accounts, did anyone hear the Democratic Caucus objecting strongly?
July 21st, 2009 at 4:12 pm
Post Office Box!
July 21st, 2009 at 4:13 pm
The rediculous thing about the way TV news works is that there ARE some very shocking stories out there. Stories about militarism, injustice, corporate greed, and hypocracy of those in power. If the new media wasn’t so afraid of covering these stories they’d be able to find plenty of drama. Best of all, it’d be true.
July 21st, 2009 at 4:16 pm
Pension funds are supposed to do accounting on this basis . . .
That doesn’t even make sense, and any attempt to reinterpret it to make sense would still be completely wrong–pensions are allowed, for example, to make use of actuarial tables, and are not forced to assume some bizarre scenario in which everyone with a pension lives forever.
July 21st, 2009 at 4:19 pm
Ooo! What if every single person covered by private health insurance suddenly needed heart surgery and chemotherapy at the exact same time? How much would that cost? Or if every single house and business in the country insured against fire suddenly got struck by lightning and burned to the ground? I bet that would cost a LOT!!!
July 21st, 2009 at 4:19 pm
Anybody remember Democratic leaders like Barney Frank telling us a few years ago that those government guarantees of Fannie Mae/Freddie Mac securities were not real guarantees and were not likely to ever be needed or to turn into real debt??
So how did that work out?
http://en.wikipedia.org/wiki/Federal_takeover_of_Fannie_Mae_and_Freddie_Mac
July 21st, 2009 at 4:23 pm
And what kind of morons think that just because the $23 Trillion in loans and guarantees issued for the bailout are unlikely to ever be incurred 100 percent that that means the actual cost of the bailout will be ZERO? Or are we talking about $1.50 in sunk costs?
Could those who are jeering at the $23 Trillion tell us what the actual cost is likely to be?
And if they can NOT give such an estimate, then maybe they can explain their carefree lack of concern?
July 21st, 2009 at 4:30 pm
Don, does screaming rhetorical questions into the ether serve as a therapy for you or something?
July 21st, 2009 at 4:35 pm
Less than $23 trillion?
There, that was easy.
July 21st, 2009 at 4:43 pm
And what kind of morons think that just because the $23 Trillion in loans and guarantees issued for the bailout are unlikely to ever be incurred 100 percent that that means the actual cost of the bailout will be ZERO?
I don’t think anyone has suggested the bailout has zero cost. That would be as utterly ridiculous as the $23 billion figure. If you want an estimate, go read up on them. They’ve suggested TARP is going to cost somewhat less than $700 bil, and TPIP was never implemented in the first place.
Or, just keep screaming. Maybe after the 780th unhinged post someone might listen.
July 21st, 2009 at 4:47 pm
And of course, this:
$23 Trillion in loans and guarantees issued for the bailout
Is completely inaccurate. As you’d know if you read the damn post, it includes the entire obligations of the FDIC and Fannie/Freddie, both of whom have been operating long before the bailout. You could at any point, no matter the state of the economy, state a similar figure, since paying off every bank account and mortgage in America would be roughly as costly.
It would be more accurate to simply calculate, say, the increase in the FDIC guarantee last fall to try to stabilize confidence. But that would be a tremendously smaller number and have much less shock value for people like yourself to get worked up over.
July 21st, 2009 at 4:49 pm
All the Fed has to do is to print 1 $23 trillion bank note. Just one.
And our problems are solved.
July 21st, 2009 at 4:55 pm
You know Jeff, your namesake – the President of the CSA – tried that. So did the financial people for Louis the XV. You might want to read “The Ascent of Money” to see just how well that worked out for them.
There are far more recent examples as well – Argentina, Weimar Germany, Israel back in the 70’s…
July 21st, 2009 at 4:58 pm
I’m going to assume, for the sake of my own sanity, that Mr. Davis is being snarky, and Mr. Robertson just likes to show off his Wikipedia reading ability.
July 21st, 2009 at 5:14 pm
Yeah, phoney baloney numbers should just cavalierly brushed aside. They don’t really mean anything and pose no threat.
Like when the Office of the Comptroller of the Currency back in December cataloged $170 trillion in derivative exposure among five of our largest banks. I laughed at them. $170 trillion? Come on. There is not that much money contained in the universe. And besides, with a common derivative failure rate of 20% that would mean the banks will lose sometime in the near future $34 trillion actual, real dollars, which is impossible.
It is just like “oil shock” scare tactic doomsayers use. They are pathetic. There is no reason to promote policies that would eliminate our dependency on foreign oil because there is no such thing as a Black Swan event. A massive oil shock can not happen because there is lots of oil, and as we know, the price of oil always adheres to the laws of supply and demand.
Don’t worry, the finincial collapse in September is as big as it gets, thanks to the transparent and perfectly structured bailouts. Everything is fine now, and numbers too big to be believed are meaningless, and to be ignored.
July 21st, 2009 at 5:29 pm
Long before events unfold such that we come anywhere near to actually losing that $23 trillion, we will already be cooking and eating our neighbors, or they us. It is a very silly number.
July 21st, 2009 at 5:37 pm
[...] pwns. Money quote: I got into writing about politics because I like the idea of trying to improve [...]
July 21st, 2009 at 5:57 pm
Mr. Robertson is not really known for his ability to understand sarcasm. Actually, he has demonstrated a marked inability to understand simple English, so the fact that he doesn’t recognize sarcasm shouldn’t surprise us.
July 21st, 2009 at 6:16 pm
Re: Housing values have never gone down across the country.
Housing values have never gone down to 0, no. Except a few very localized incidences involving disasters, whether natural or manmade– the real estate at Love Canal or Mt St Helens did go to 0– but anything that did that across the whole nation would involve a disaster of such scale it would probably mean the extinction of humankind as well.
Re: Some of that money could be owed to other countries
The sum total of the world’s capital markets is less than 23T too, so no way could the US borrow even a major fraction of that number.
Re: Pension funds are supposed to do accounting on this basis
Right, because penson funds are likely to have to pay out their obligations– only a small fraction of the claimants die before collecting. In this case the likelihood of making the payouts is vanishingly small– anything that did occasion losses on that scale (e.g., nuclear war, giant asteroids etc) would also eliminate the need for the payout since the claimants would also be dead.
July 21st, 2009 at 7:45 pm
Headline: “World Ending Would Be Problematic, Report Says”.
July 21st, 2009 at 7:45 pm
Re JonF at 34: “In this case the likelihood of making the payouts is vanishingly small– anything that did occasion losses on that scale (e.g., nuclear war, giant asteroids etc) would also eliminate the need for the payout since the claimants would also be dead.”
———-
According to Lawrence McDonald, CEO Richard Fuld at Lehman Brothers used similar arguments to rationalize his denial.
So how did that work out?
http://www.nytimes.com/2009/07/21/books/21kakutani.html
July 21st, 2009 at 8:44 pm
With “all I have is name calling” Jeff Davis, it’s hard to tell sarcasm from willful ignorance…
July 21st, 2009 at 9:06 pm
Occasionally one really does need to be careful about the numbers. There’s a sort of lazy assumption often that if you disagree with some high estimate of a horrible thing, you’re in favor of that horrible thing.
I’ve seen that awful game played with mass slaughter and genocide. Someone will posit an unrealistic, unsupported number of people killed in some action, and depending on which side is the powerful side of the argument, anyone who disagrees may then be accused of trying to ‘minimize’ the slaughter or casualty.
It might surprise some people that just because you don’t care for a hasty and groundless effort to tie actually existing bailout efforts into the complete and utter collapse of the U.S. economy such that zero value remains doesn’t mean you’re naive about the trillions which have basically been either given to or set aside for our incompetent, venal upper classes as a hostage reward.
July 21st, 2009 at 10:30 pm
This thread is funny.How about if Cheney has a death star and holds the whole world hostage? Hmmm? How much would that cost? Huh?
July 21st, 2009 at 10:45 pm
Re par4 at 39: “How about if Cheney has a death star and holds the whole world hostage? Hmmm? How much would that cost? Huh?”
—————
Evidently, Cheney doesn’t have to go to the expense of actually acquiring a Death Star. He just has to have Hank Paulson convince credulous Members of Congress that Cheney has a Death Star.
KInda a variation on the old National Lampoon subscription drive:
http://en.wikipedia.org/wiki/File:Natlamp73.jpg
July 22nd, 2009 at 1:20 am
@40 Don Williams Classic link. Too funny.
==================================
The $23 trillion bailout figure is crazy, but it could be, and, in fact, is being interpreted as technically accurate.
But even if the deceitfulness of the figure was completely and miraculously understood and rejected by pretty much everyone, there are plenty of numbers -demonstrably accurate and vastly more terrifying numbers- available to be randomly gathered by vested parties and used to a nefarious purpose.
These cryptic and incomprehensible figures must be dealt with politically. The blame for the very existence of these numbers, burn them at the stake-type numbers, should be pinned solely on the Party of No. But, alas, they won’t be. Instead, our Obama, the Gentle One, in his quest for Buddhist perfection, has chose to make perpetual bipartisan nice-nice with a not-so-secret enemy that has sworn in open ceremony to seek and destroy him.
Meanwhile, this not-so-secret enemy of our Gentle Leader, the less divinely inspired and ruthlessly realistic Party of Machiavellians, has, in broad daylight, slowly and inexorably outflanked him, and is proceeding to unearth and attach a rusting but still deadly Tax and Spend Liberal medal directly to his lapel.
July 22nd, 2009 at 1:59 am
The total value of all goods and services produced in the United States is $13.8 trillion. So pretty clearly the government could not, in fact, spend $23 trillion on bailouts.
Matt I am not going to take a position here on the Barofsky number of 23.7 T. However, this line of yours above is incorrect on its face. The hallmark of the debt bubble was that it expanded way, way beyond the production of goods and services in both our economy and in other economies. Just not sure if this is an oversight of writing, on your part, or a more genuine failure of logic. I assume you are aware that 23 Trillion is still dwarfed by global derivatives. I will also assume you are aware that many of these national bailout programs have been used to bailout derivatives.
Again, I am not taking a position on whether Barofsky’s 23.7 T is even useful. (My quick take is that it is indeed useful but does not paint an accurate portrait of present conditions).
G
July 22nd, 2009 at 7:14 am
It’s ammusing to read some of these comments. Don, calm down. Read up on how the government works. Presidents don’t “rack up” debt, only the Congress can. Only a President who has a compliant Congress can get his spending approved. How many Rpublican Congresses have there been in the last 60 YEARS? One? Maybe what we need to hear is a more conservative approach instead of SCARE, SCREAM and SPEND (and SPEND MORE) approach.
July 22nd, 2009 at 7:53 am
TV News hypes anything and everything right up to and including half truths and lies. If it sells, they’ll do it. Do I trust anyone on TV News? An emphatic NO! They seek to sell thier station/network/celebrity, that is all.
July 22nd, 2009 at 9:32 am
Right. $24 T is a crude estimate of our maximum exposure. Now suppose the final tab is only $4 T. Let’s have a serious discussion of what this means to the American people. I say we have squandered the Social Security Trust Fund in the sense that we will no longer be able to finance the draw-down of that fund over the next 25 years.
July 22nd, 2009 at 10:44 am
Don’t we owe that much in unfunded mandates for Social Sec, medicare and medicaid?
July 22nd, 2009 at 12:06 pm
[...] this doesn’t go far enough in explaining how unlikely we are to ever come close to spending so much money. As Floyd Norris [...]
July 22nd, 2009 at 12:21 pm
The situation is bad enough without wild exaggerations…which can be easily disproven. Remember the old adage; say correct things. Here’s the real number; Obama will triple Bush’s insane national debt in 10 yrs. The result will be MUCH higher taxes on the middle class and/or inflation.
July 23rd, 2009 at 6:34 am
Re:According to Lawrence McDonald, CEO Richard Fuld at Lehman Brothers used similar arguments to rationalize his denial.
So how did that work out?
I fail to see how this is a response to my post, which is really stating the fact that anything that caused 23T in damage to the world economy would entail a catastrophe on such a scale that the monetary losses would be the least of our problems, assuming anyone would even be alive to care. Lehman’s collapse was no where near 23T– it was several orders of magnitude less.