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$700 BILLION.
That number has started obscuring more than it illuminates. Andrew Sullivan, for instance, posts this graph, courtesy of the LA Times:
Whoa. Death by bailout. But the $700 billion is the total amount of assets the Secretary of Treasury can purchase. It is not the total cost of the bill. Then all the assets need to be sold. No one quite knows the price at which they'll be sold. If that price is not as much or more than they cost, then the bill forces the president to submit legislation "that recoups from the financial industry an amount equal to the shortfall in order to ensure that the Troubled Asset Relief Program does not add to the deficit or national debt." Then there are the potential gains on the equity taxpayers get in rescued institutions.
As the CBO says, "enacting the bill would likely entail some net budget cost—which would, however, be substantially smaller than $700 billion." Hell, the LA Times article featuring that misleading graphic quotes one Brad DeLong saying, "It's entirely within the realm of possibility that we'll make money on this deal." Now, you could imagine structuring the bill such that full repayment is more likely and such that profit is more likely. But even in its current form, no analyst I've read thinks the legislation will cost $700 billion, or even close to it.
COMMENTS (11)
In that case, shouldn't it be quite obvious how we're going to get this bill passed? Take all the bill's language about "recoup[ing] from the financial industry" and copy and paste it into every section of the bill, change the title of the bill to the "Wall Street Pays for Itself Act" or some silly acronym -- so that the TV news reporters feel like they can go on the air and talk about how this "new" bill is a radical departure that listens to voter complaints. Then sit back and watch those votes roll in.
Posted by: tom veil | September 29, 2008 4:16 PM
This is a really, really important point and good for EK for jumping up and down and insisting that people recognize.
To step back a bit and restate the point in a different way, the whole problem here is the uncertainty about these assets. If we knew that the securities at issue were collectively going to come up $700 billion short of face value, then we wouldn't have a liquidity crisis, because the holders could just sell them at the appropriate discount to face value.
Posted by: alkali | September 29, 2008 4:52 PM
Minor point, but that NASA figure is less than half of what one usually hears. I think they're excluding the Mercury and Gemini costs.
Posted by: Brian Schmidt | September 29, 2008 5:14 PM
We're spending $100B to go to the goddamn moon again?!?
Posted by: jeebus | September 29, 2008 6:13 PM
I dodn't know Ezra Klein believed in the Tooth Fairy (with Brad deLong, I'm not surprised at all ;-)
Posted by: piglet | September 30, 2008 1:00 AM
The act says that the Secretary is limited to $700 billion outstanding at any one time.
"Outstanding at any one time" is defined as:
"The amount of troubled assets purchased by the Secretary outstanding at any one time shall be determined for purposes of the dollar amount limitations under subsection (a) by
aggregating the purchase prices of all troubled assets held."
Does this mean that assets no longer "held" do not count towards the limit? That is, if the Secretary bought $700 billion in assets and sold them for $100 billion, $0 would be outstanding. It would seem that the Secretary could then buy another $700 billion in assets.
Posted by: Are you sure | September 30, 2008 10:08 AM
Who knows, we're not allowed to challenge it in court to even find out.
Posted by: Yeah Right | September 30, 2008 10:39 AM
I'm sorry, but the taxpayers will make a profit on this bailout deal when pigs start their own Apollo program. What happens to that legislation that the President "must submit" when congress votes against it?
If the outcome of the no vote is that Bush comes back with a scaled-down program that asks only for as much money as is immediately needed, with the rest of the decision deferred, then everybody wins.
Posted by: digger | September 30, 2008 10:54 AM
"Does this mean that assets no longer "held" do not count towards the limit? That is, if the Secretary bought $700 billion in assets and sold them for $100 billion, $0 would be outstanding. It would seem that the Secretary could then buy another $700 billion in assets."
I think you have it pretty much. THAT is one of my problems with the bill. It is disguised as a $700 package, but the actual text reveals it to really be $700 Billion at a time and this excludes the losses that the people will likely take when the Secretary buys assets for $500 billion and sells those assets for $200 billion, taking a $300 billion loss and then coming back to the table and spending another $700 billion.
If that weren't the case, why would the bill be written the way it was. Let's face it, this bill was designed for one thing and one thing only... for Bush and Paulson to enrich their Wall St. friends. Sell assets to Paulson's Goldman Sachs buddies dirt cheap, bankrupting the Treasury in the process.
I don't trust these guys one iota, and if and when they 'really' want to solve the issues in the market, they'll come up with a plan that shows us what the bad debt is, how their going to spend the American people's money, and how we won't lose our shirts in their bailout of Wall St.
Posted by: Esmond | September 30, 2008 5:15 PM
"...no analyst I've read thinks the legislation will cost $700 billion, or even close to it."
Remember how little Iraq was going to cost? And maybe pay for itself?
When will we learn?
Posted by: Chris | September 30, 2008 5:19 PM
I gotta go with Are You Sure, at least according to the language I've seen. It's essentially a trading fund with a maximum capital draw of $700 billion and a two-year lifespan. You can argue that the purchases will be quick and the sales slow, so that $700 billion is close to the total amount that will be purchased, but nothing in the bill says so. From the finance point of view, you can unload a lot more toxic assets from people's balance sheets if you keep unloading the stuff you've already bought. And from the bailout point of view, if the Treasury doesn't keep taking losses on the paper, then why did the banks bother selling it to them in the first place?
Posted by: paul | September 30, 2008 9:15 PM