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Next Bank ‘Bailout’ Could Cost $2 Trillion

From the Wall Street Journal:

New Bank Bailout Could Cost $2 Trillion


JANUARY 29, 2009

WASHINGTON — Government officials seeking to revamp the U.S. financial bailout have discussed spending another $1 trillion to $2 trillion to help restore banks to health, according to people familiar with the matter.

President Barack Obama’s new administration is wrestling with how to stem the continuing loss of confidence in the financial system, as it divides up the remaining $350 billion from the $700 billion Troubled Asset Relief Program launched last fall. The potential size of rescue efforts being discussed suggests the administration may need to ask Congress for more funds. Some of the remaining $350 billion of TARP funds has already been earmarked for other efforts, including aid to auto makers and to homeowners facing foreclosure.

The administration, which could announce its plans within days, hasn’t yet made a determination on the final shape of its new proposal, and the exact details could change. Among the issues officials are wrestling with: How to fix damaged financial institutions without ending up owning them.

The aim is to encourage banks to begin lending again and investors to put private capital back into financial institutions. The administration is expected to take a series of steps, including relieving banks of bad loans and distressed securities. The so-called "bad bank" that would buy these assets could be seeded with $100 billion to $200 billion from the TARP funds, with the rest of the money — as much as $1 trillion to $2 trillion — raised by selling government-backed debt or borrowing from the Federal Reserve.

The administration is also seeking more effective ways to pump money into banks, and is considering buying common shares in the banks. Government purchases so far have been of preferred shares, in an effort to both protect taxpayers and avoid diluting existing shareholders’ stakes…

Treasury Secretary Timothy Geithner said Wednesday that he wants to avoid nationalizing banks if possible. "We’d like to do our best to preserve that system," Mr. Geithner said. But given the weakened state of the banking industry, with bank share prices low and their capital needs high, economists say the government probably can’t avoid owning at least some banks for a temporary period

Do we even know how much the last several bank bailouts have cost?

Where is all this money going? (The map is nice, but somehow it doesn’t tell the whole story.)

And, more importantly, where is all of this money supposed to be coming from?

This article was posted by Steve on Thursday, January 29th, 2009. Comments are currently closed.

4 Responses to “Next Bank ‘Bailout’ Could Cost $2 Trillion”

  1. Odie44 says:

    The map is not a surprise, being NYC, LA and Charlotte are the “corporate centers of most large banks” and agree – doesnt tell us where the money is going.

    What would be interesting is a map layover of mortgage defaults, foreclosures – which will paint a truer picture of who is directly effected.

    BUt then again, $350M is “missing” and there are zero caveats for banks to actually utilize the moneys specifically to inject liquidity to the credit markets and or pay down mortgages through a) longer terms, b) lower or freeze interest rates and c) waiver of penalities or extend foreclosure proceedings.

    SO we are left with bilions going into a void directly to banks and billions being considered in direct funds from the gov to mortgage holders who need “help”

    Again – less those who couldnt afford a mortgage plus those folks and companies flipping houses, sitting on mortgages they cannot pay for and it will equal a true snap shot of the mortgage issue.

    I have zero sympathy for someone getting a mortgage over their head and zero sympathy for people who thought buying 3-8 mortgages in the hopes of “flipping them for a profit” Both are investments they couldnt afford, akin to selling everything to buystocks agt $10 that now trades at $1

    Too friggin bad.

  2. pdsand says:

    “The aim is to encourage banks to begin lending again and investors to put private capital back into financial institutions.”
    Just a cursory perusal of the headlines of the financial pages of any newspaper covering the seemingly endless strings of government efforts to inject a boatload of cash into the financial systems all over the world that have tried this over the last year will show on every single account that the exact opposite has happened. The banks put the money away in a rainy day fund, or use it to shore up their balance sheets, but they dang sure don’t lend it.
    Also the stock market always tanks the day that the government intervenes, because the massive government borrowing leads to inflation which will make investors run for the hills while the value of that country’s stock market and currency experiences shell-shock over the gazillion dollar price tags of all this foolishness. It has happened again and again and again.
    So why would the smartest person in the room, the sainted Obama think that anything else other than what has happened every single time before will be the result this time? And when it’s on a much grander scale that will REALLY send our currency and inflation into a series of backflips?
    The only reason I can think of is that he just wants to pass a piece of legislation that uses the number “TRILLION”. That way when he asks for a few billion for this or a few billion for that later on, it’ll be nothing compared to the gargantuan federal budget, and nobody will even care. And heaven forbid a single Republican should vote for this bill, because then no Republican will ever be allowed to raise a peep about the size of a budget or the federal government in general for the next century. “Well y’all voted for that 2 TRILLION dollar bailout bill, and it only went to banks and your white construction worker buddies and included a bunch of tax cuts for the wealthy, so why do you care if we spend 350 billion on slavery reparations? I know you don’t have a problem with spending money, you just don’t like black people.”

  3. Liberals Demise says:

    Is everyone smoking crack?
    Not 1 copper cent should be shifted to the banks.
    F ’em all!!

  4. 12 Gauge Rage says:

    This is why I’ve always kept my money in a credit union. I don’t hear any stories of those institutions failing.

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