Posted by: David Henry on February 13
The U.S. government has never, not once in its 220 year history, paid out so much money as it is spending now to bailout the financial system. It didn’t spend as much for the Louisiana Purchase, the New Deal, or even World War II.
James A. Bianco, who has been writing bond market commentary at Chicago-based Bianco Research for 20 years, looked up the major outlays of history and adjusted the values for inflation. That task was easy compared with figuring just how enormously expensive the credit crisis has become. Bianco counted 24 different bailout programs being operated by the Federal Reserve, Treasury and other government entities. Their maximum announced outlays totaled $8.7 trillion.
And, that was before President Obama took office. Since then, the new administration has planned more financing and spending, including having a public-private fund invest up to $1 trillion in toxic debt securities. There’s also to be another $800 billion of advances on debt-backed securities through the Federal Reserve in the so-called TALF program.
The Treasury and Fed will get money back on some of its money they invest. How much is anyone’s guess. And, some of the maximum outlays include guarantees that might not have to be honored. Still, the historical comparisons show that a trillion dollars for the bailout here and a trillion dollars there is real money. The biggest previous occasion for U.S. spending cost $3.6 trillion. That was for World War II.
For a better sense of scale, here are the historical reference points Bianco found:
• Marshall Plan: nominal cost $13 billion, inflation-adjusted $115 billion.
• Louisiana Purchase: cost $15 million, adjusted $217 billion.
• Race to the Moon: cost $36 billion, adjusted $237 billion.
• S&L Crisis: cost $153 billion, adjusted $256 billion.
• Korean War: cost $54 billion, adjusted $454 billion.
• The New Deal: cost $32 billion (est), adjusted $500 billion (est).
• Gulf War II/War on Terror: cost $551 billion, adjusted $597 billion.
• Vietnam War: cost $111 billion, adjusted $698 billion.
• NASA (cumulative): cost $417 billion, adjusted $851 billion.
The items above total $3.9 trillion in current dollars. World War II cost $288 billion, or $3.6 trillion in current dollars.
For a better sense of the ways the government is spending on the bailouts, here are some of the line items Bianco found and their maximum announced dollar amounts before Obama:
Federal Reserve total: $5 trillion, including:
Fed purchases of corporate short-term debt: $1.8 trillion.
Term Auction Facility for bank lending: $900 billion.
Mortgage-backed and agency securities: $600 billion.
Money market investor funding: $540 billion.
Treasury total: $1.8 trillion, including:
TARP: $700 billion.
Fannie Mae and Freddie Mac bailouts: $350 billion.
Stimulus package in spring 2008: $168 billion.
Citigroup asset backstop: $300 billion.
TALF: $200 billion.
Federal Deposit Insurance Corp. guarantees: $1.6 trillion.
BusinessWeek's Adrienne Carter, Jessica Silver-Greenberg, and David Henry deconstruct the mysteries of high finance, Wall Street, and hedge funds for pros and ordinary investors. E-mail them directly if you've got tips about big deals, a hedge fund, or even securities industry gossip.