Forbes: What Will the Federal Bailout Plan Cost? | Newsweek From Forbes.com

Why the government's plan could cost $1 trillion or more

By Liz Moyer | Forbes.com

Sep 19, 2008 | Updated: 12:00 p.m. ET Sep 19, 2008

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Treasury Secretary Henry Paulson will spend the weekend finalizing a plan to rescue the ailing banking system by buying up toxic assets, at a potential cost of "hundreds of billions of dollars."

"We must now take further, decisive action to fundamentally and comprehensively address the root cause of our financial system's stresses," Paulson said at a press conference Friday.
"I am convinced that this bold approach will cost American families far less than the alternative--a continuing series of financial-institution failures and frozen credit markets unable to fund economic expansion."

In Depth: Treasury Lends A Hand To Money Markets

In Depth: Washington Works On Financial Rescue Plan

In Depth: Shorts Get Shorted Out

In Depth: The Rich Run From Putnam

In Depth: Watching Wall Street's Shotgun Weddings

In Depth: Thinking Through The Turmoil

The announcement comes amid growing consensus in Washington that the federal response to the credit crisis has fallen short of a solution that would restore confidence and stability in the financial markets. The creation of a new entity to deal with the crisis is just one solution being explored. Paulson said he hoped Congress could act next week on the plan. Markets soared for a second day on the news.

So far, the federal government's tab for propping up Fannie Mae, Freddie Mac, and American International Group is $400 billion. Add the new loan relief entity, plus a smattering of other recent initiatives, and the jumping-off point could be near $1 trillion.

Seem high? It isn't. If history is a guide, the price tag for all this bold action will ultimately outstrip any estimate now being floated. In past bailouts, including the Resolution Trust Corp. formed in 1989 to help resolve the savings-and-loan crisis, the ultimate taxpayer cost was magnitudes larger than originally projected.

When Congress put together the RTC, it funded it with $50 billion and tasked it with taking on the assets of failed thrifts and subsequently working them off. The RTC lasted until 1995 and required additional injections of capital along the way, ultimately totaling more than $100 billion.

The latest announcement comes a day after Paulson and Federal Reserve Chairman Ben Bernanke met with leaders from both sides of the political aisle on Capitol Hill Thursday to begin work on a plan of action to help relieve banks of their toxic assets. Friday, the Treasury said it would use $50 billion to provide insurance to publicly traded money funds.

Paulson's bad-asset rescue plan would join a bunch of other proposals now circulating Washington. The crisis deepened last weekend with the bankruptcy of Lehman Brothers and the $85 billion loan package arranged by the Fed Tuesday to bail out AIG. There are various ways of structuring such an entity.

Presidential candidate Sen. John McCain, R-Ariz., called for the creation of mortgage and financial institutions trust, which would work with the private sector and regulators to identify institutions that are weak and take remedies to strengthen them before they become insolvent. "For troubled institutions, this will provide an orderly process through which to identify bad loans and eventually sell them," McCain said in a speech.

Smart, regulatory policies are an unfortunate necessity (and can boost confidence) when human beings have unlimited wants and organized GREED will always seek to be unbridled. History teaches this when you analyze any large market system with many competing interests.

As a public high school teacher, the current state of our public institutions reflect our values as a society, from my point of view. I ask Newsweek readers to PLEASE consider the following comparison of our institutions: our pubic schools and our private financial "powerhouses" that are now being bailed out with our taxpayer dollars.

We are bailing out these failing institutions with taxpayer dollars while the state of our public school system continues to decline. Think about this, voters PLEASE! Not just for the sake of your own personal interests, but for the sake of our country.

Good teachers are being laid off and class sizes are growing. No child left behind is a law that requires improvements without funding to implement these improvements. Schools are listed as "failing schools" (terrible for morale) because of unrealistic goals/unfunded mandates funded by politicians seeking to score political points. What is often "left behind" in our public schools is often a stressed out skeleton staff that does not have the ability to properly educate our students.

Meanwhile, these corporate lobbyists that effectively secured deregulation and what they consider "optimal" conditions for success (deregulation). And a few well-connected people have lined their pockets with enormous amounts of other peoples' money.

John McCain has a record of being a major player and advocate of deregulation and has taken money TIME AFTER TIME from the deregulation lobbyists - the very same "fat cats" he's now criticizing! NOW McCain is calling for change, when his deregulation in part has created this mess?

This sort of short-term gain at the expense of long-term growth way of thinking has infected our entire way of running our society.

Unfortunately, young people (the MAJORITY) of our future do not have the money or the resources to hire corporate lobbyists. Their teachers and their schools have limited resources. And there are little organized efforts to reform and progress/ lead our public schools into the 21st century. In every other developed and developing country we compare our students' progress with, there are sustained efforts to improve, fund, and prioritize education.

In America, we are starving our schools while bailing out reckless fat cats who've thrived on greed. Is this the American Way? Or have we lost our way?

Let this difficult period be a lesson. We all want healthy money markets and retirements. We must see the connection between healthy public schools and a healthy economy that is investing in human capital. Hopefully (as we say in class) we will learn from all of this and use it to improve, grow, and succeed.

Comrade Paulson and Commissar Bernanke are making the world safe from those capitalist pigs. Let's hear it for globalization and the free markets that require such help. In China, they call this intervention business as usual. In America, we call it saving the people who caused the problem because they are too big to fail. These people also make the largest campaign contributions, but that was never a consideration.The market is free until it is not. Or enough people realize it never was. If you play with cheaters and you don't know it; shame on you. If you knew they would cheat; shame on you. If you believe they are just helping the free market through a bad time; shame on you. If you are investing because you think Comrades and Commissars are on your side; forget shame, go directly to suicide.

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Posted By: melbee1971 @ 09/21/2008 3:35:32 PM

"ABOVE ALL THINGS I hope that the education of the common people will be attended to, convinced that on their good sense we may rely with the most security for the preservation of a due degree of liberty." -Thomas Jefferson
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Posted By: melbee1971 @ 09/20/2008 5:18:50 PM

Smart, regulatory policies are an unfortunate necessity (and can boost confidence) when human beings have unlimited wants and organized GREED will always seek to be unbridled. History teaches this when you analyze any large market system with many competing interests.

As a public high school teacher, the current state of our public institutions reflect our values as a society, from my point of view. I ask Newsweek readers to PLEASE consider the following comparison of our institutions: our pubic schools and our private financial "powerhouses" that are now being bailed out with our taxpayer dollars.

We are bailing out these failing institutions with taxpayer dollars while the state of our public school system continues to decline. Think about this, voters PLEASE! Not just for the sake of your own personal interests, but for the sake of our country.

Good teachers are being laid off and class sizes are growing. No child left behind is a law that requires improvements without funding to implement these improvements. Schools are listed as "failing schools" (terrible for morale) because of unrealistic goals/unfunded mandates funded by politicians seeking to score political points. What is often "left behind" in our public schools is often a stressed out skeleton staff that does not have the ability to properly educate our students.

Meanwhile, these corporate lobbyists that effectively secured deregulation and what they consider "optimal" conditions for success (deregulation). And a few well-connected people have lined their pockets with enormous amounts of other peoples' money.

John McCain has a record of being a major player and advocate of deregulation and has taken money TIME AFTER TIME from the deregulation lobbyists - the very same "fat cats" he's now criticizing! NOW McCain is calling for change, when his deregulation in part has created this mess?

This sort of short-term gain at the expense of long-term growth way of thinking has infected our entire way of running our society.

Unfortunately, young people (the MAJORITY) of our future do not have the money or the resources to hire corporate lobbyists. Their teachers and their schools have limited resources. And there are little organized efforts to reform and progress/ lead our public schools into the 21st century. In every other developed and developing country we compare our students' progress with, there are sustained efforts to improve, fund, and prioritize education.

In America, we are starving our schools while bailing out reckless fat cats who've thrived on greed. Is this the American Way? Or have we lost our way?

Let this difficult period be a lesson. We all want healthy money markets and retirements. We must see the connection between healthy public schools and a healthy economy that is investing in human capital. Hopefully (as we say in class) we will learn from all of this and use it to improve, grow, and succeed.
- Reply
- Report Abuse
Posted By: timrogers @ 09/19/2008 9:00:36 PM

Comrade Paulson and Commissar Bernanke are making the world safe from those capitalist pigs. Let's hear it for globalization and the free markets that require such help. In China, they call this intervention business as usual. In America, we call it saving the people who caused the problem because they are too big to fail. These people also make the largest campaign contributions, but that was never a consideration.The market is free until it is not. Or enough people realize it never was. If you play with cheaters and you don't know it; shame on you. If you knew they would cheat; shame on you. If you believe they are just helping the free market through a bad time; shame on you. If you are investing because you think Comrades and Commissars are on your side; forget shame, go directly to suicide.