Bailout Numbers: Counting The Cost To US Taxpayers

One of the questions that keeps popping up — which the administration and the mainstream media (for the most part) seem to be avoiding — is what are all these extraordinary interventions of the past several months going to cost the taxpayers (you know, the ones who are actually putting up the cash)?

Another related concern is what exactly are we getting in return for all this money we are throwing at the financial community?

Well, wonder no more. One of my favorite bloggers, Barry Ritholtz, money manager and publisher of The Big Picture, has addressed the issue head-on in “New Bailout Price Tag: $2.25 Trillion Dollars”:

On Monday, I said that the total cost of this bailout could scale up to $3 trillion — I just didn’t imagine it would happen by Wednesday.

We learned yesterday that the size of the bailout just tripled, from $750b to $3T. Here is the cost structure:

• $250 billion of capital into banks;
• Guarantee $1.5 trillion in new senior debt issued by banks;
• Insure $500 billion in deposits in noninterest-bearing accounts (primarily businesses accts).

In exchange for this largesse, the treasury, on behalf of taxpayers, receives:

• Preferred shares that pay a 5% (rising to 9% after five years);
• No voting rights for government;
• Warrants to purchase common shares = to 15% of initial investment

All told, its a massive program that makes my earlier forecast of 2-3Trillion obsolete. New forecast is now double: $4-6 trillion dollars.

More details at articles below.

Sources:
Drama Behind a $250 Billion Banking Deal
MARK LANDLER and ERIC DASH
NYT, October 14, 2008

Bailout Critic: Plan Could Cost $3 Trillion
ALICE GOMSTYN
ABC NEWS Business, Oct. 13, 2008

Americans Embrace Big Government to Help Solve Market Crisis
Edwin Chen and Matthew Benjamin
Bloomberg, Oct. 15  2008

Devil Is in Bailout’s Details
Government’s $250 Billion Cash Injection Sparks Welter of Issues
DEBORAH SOLOMON and DAVID ENRICH
WSJ, OCTOBER 15, 2008

Posted in Categories: Contributor, Economy, External Research, USA.

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