TARP Uncovered -- the Real Cost of the Government Bailout

One of the reasons that TARP did not cost more was because of the government's other more costly bailout policies, and to ignore them is to dramatically understate the true cost of the bailout.
This post was published on the now-closed HuffPost Contributor platform. Contributors control their own work and posted freely to our site. If you need to flag this entry as abusive, send us an email.

The New York Times reports this morning ("TARP Bailout to Cost Less Than Once Anticipated") that the true cost of TARP will be less than $50 billion. I find this type of reporting to be incredibly misleading and deceitful. Focusing solely on TARP and ignoring the other more costly portions of the government bailout of our biggest banks and corporations ignores the true cost of the government's (both the Bush and Obama administrations, the Fed and Congress) inept response to this crisis. One of the reasons that TARP did not cost more was because of the government's other more costly bailout policies, and to ignore them is to dramatically understate the true cost of the bailout.

By claiming a narrow TARP success, the Times attempts to invalidate citizen anger at the bailout by making it appear that the electorate is somehow misinformed about its costs or is just plain stupid. Nothing could be further from the truth. Claiming that TARP was successful, but ignoring the much larger and more relevant costs of other areas of the government bailout is like claiming the voyage of the Titanic was successful because many of the lifeboats were recovered. It is important to remember that the ship sunk.

Here are my estimates of some of the total costs to American consumers and taxpayers of the entire government bailout. Many of these costs could have been absorbed by creditors and lenders to these highly leveraged large banks and financial institutions without involving taxpayer funds, but both administrations instead chose to stick it to the electorate rather than risk alienating their biggest corporate and wealthy campaign donors.

Estimated Total Costs of Bailout

  • Fannie and Freddie bailout = $700 billion estimated, at least, on their $5 trillion portfolio.

  • Federal Reserve's increased printing of money to fund purchase of mortgage securities in market and bad assets from banks (which directly leads to an equal amount of inflation, a hidden tax on consumers and savers) = $2 trillion.
  • Eventual FDIC losses = $500 billion.
  • Credit union guarantees = $50 billion.
  • Present value cost of lost interest income to US retirees and other savers due to government's zero interest rate policy = $2 trillion.
  • Present value cost of additional high unemployment and lost wages caused by government's focusing on bank and Wall Street profitability first, rather than on job creation = $5 trillion.
  • Total loss in housing values due to inappropriate response to overbuilding and high foreclosure problem = $4 trillion (a fraction of the total housing value loss of10 trillion, much of which was necessary to return to non-bubble levels).
  • Cost of future bad loans created since 2008 by Fannnie, Freddie and FHA by continuing to lend aggressively into declining real estate markets = $300 billion.
  • Wasted stimulus money (Where exactly did this money go and what do we have to show for it?) = $300 billion.
  • Total estimated cost of government bailout = $14.85 trillion.
  • This is more than an entire year's economic output for the entire country. It is as if we Americans worked an entire year for free to pay for our government's inappropriate response to this crisis.

    I am not saying that government caused the crisis by itself. I do believe that Wall Street and the big banks are mostly to blame. But government does have to accept responsibility for its inept response to the crisis and the fact that they burdened the US taxpayer with most of its cost rather than the debt and equity investors in these corrupt financial institutions.

    John R. Talbott is the bestselling author of eight books on economics and politics that have accurately detailed and predicted the causes and devastating effects of this entire financial crisis including, in 2003, "The Coming Crash in the Housing Market", in January 2006, "Sell Now! The End of the Housing Bubble" and in 2008, "Contagion: The Financial Epidemic that is Sweeping the Global Economy".

    Popular in the Community

    Close

    What's Hot