advertisement
For all the fury over Treasury Secretary Henry Paulson's $700 billion emergency economic relief fund, it seems downright puny when compared with the running total of the government's response to the credit crisis.
According to CreditSights, a research firm in New York and London, the U.S. government before last week had put itself on the hook for some $5.5 trillion in an attempt to arrest a collapse of the financial system.
And Washington committed $800 billion more Nov. 25, bringing the total to about $6.3 trillion.
The Federal Reserve last week promised an additional $200 billion in loans to purchase new asset-backed securities and $600 billion direct obligations and mortgage-backed securities of government-sponsored entities such as Fannie Mae (FNM, news, msgs) and Freddie Mac (FRE, news, msgs). The Treasury Department is providing $20 billion to help fund the $200 billion pool, but the Treasury's portion is already included in Uncle Sam's tab.
The multitrillion-dollar estimate includes many of the solutions cooked up by Paulson and his counterparts Ben Bernanke at the Federal Reserve and Sheila Bair at the Federal Deposit Insurance Corp. as the credit crisis continues to plague banks and the broader markets.
The Fed has taken on much of that total, including lending a cumulative $1.1 trillion in overnight or short-term loans since March to primary dealers through its emergency discount window and making a cumulative $1.9 trillion available through its term auction facility, a series of short-term transactions it began making available twice a month in January. A portion of the funds lent in these programs has been repaid; the totals represent what has been made available.
The Fed also took on tens of billions in debt, including $29 billion in debt of Bear Stearns, and made $60 billion of credit available to American International Group (AIG, news, msgs). It is committing $22.5 billion to set up a special-purpose vehicle to manage some of AIG's residential mortgage-backed securities, and it is financing $30 billion of a second fund to hold $70 billion of multisector collaterized debt obligations on which AIG wrote credit default swaps.
The government, through the Treasury, the Federal Deposit Insurance Corp. and the Fed, is backing 90% of the guaranteed loans, leaving the rest to Citi to back. The government's exposure to loss is $240 billion, CreditSights says.
The FDIC, meanwhile, is guaranteeing $1.5 trillion of senior unsecured bank debt.
Not included in the total are the Fed's long-existing discount window lending to commercial banks, the mortgage modification plan announced by regulators in November, support for the Federal Home Loan Banks and myriad other programs. On Nov. 25, the Fed announced that it will begin buying up to $100 billion in direct obligations of mortgage buyers Fannie Mae, Freddie Mac and the Federal Home Loan Banks. In addition, it will buy up to $500 billion worth of mortgage-backed securities backed by Fannie, Freddie and the Government National Mortgage Association.
More from MSN Money and Forbes.com
Paulson and Bernanke have tried any number of ways to stop the free fall in housing prices and unfreeze the credit markets, with limited success. Rates that banks charge each other for three-month loans have dropped, but lending is contracting as banks brace for rising credit costs and corporate borrowers hunker down.
The Treasury has turned its focus from attempting to buy troubled assets from banks, which was the original intent of the Emergency Economic Stabilization Act in October, to injecting capital in the form of preferred equity stakes.
It started out with $125 billion worth of investments in eight major U.S. banks and has since expanded the program to an increasingly broad range of financial and nonfinancial companies. And with just $60 billion left of its initial $350 billion authorization under the emergency act, the Treasury faces a growing number of companies, including Detroit's automakers, begging for assistance.
Video on MSN Money
Saving the auto industryBail out the Big Three? Let them go out of business? There's a third option, Jim Jubak says: a prepackaged bankruptcy that gives them room to restructure while saving taxpayers from simply rescuing the companies' failed management.
David Hendler, an analyst at CreditSights, says it looks as if government will be left holding the bag, and, of course, that translates into everyone.
"The losses have to be taken, but no one wants to take them," Hendler said at a conference in November, speaking about the banks and their handling of troubled assets. "It seems like the taxpayers are going to be taking a good portion of that."
Rate this Article
High