CNBC: Bailout may cost half a trillion dollars

More tonight on the Bush administration's plan to attack the financial crisis with what The New York Times says "could be the biggest bailout in United States history." Readers of L.A. Land are suggesting other names for it, my current favorite being "Bailie Mae."

CNBC.com, which first reported talks for a RTC-like bailout of banks and financial firms, floats the half-trillion price estimate (it would look like this on a check: $500,000,000,000.00):

The proposal to create a massive facility to buy mortgage-backed securities could cost as much as a half-trillion dollars and would involve the purchase of both private-label and government-guaranteed mortgages, according to an administration official.

The New York Times reports on a plan for a "vast bailout":

While details remain to be worked out, the plan is likely to authorize the government to buy distressed mortgages at deep discounts from banks and other institutions. The proposal could result in the most direct commitment of taxpayer funds so far in the financial crisis that Fed and Treasury officials say is the worst they have ever seen.

There is more, or rather, there will likely be more -- The New York Times reports Democrats may push to include additional spending beyond the massive bailout itself:

Democrats, having their own desire for a second round of economic aid for struggling Americans, see the administration’s request as a way to win White House approval of new spending to help stimulate the economy in exchange for support for the Treasury request. Democrats also say they will push for relief for homeowners faced with foreclosure in return for supporting any broad bailout of struggling financial institutions.

The Wall Street Journal characterizes the bailout as a "plan to buy bad assets from banks":

The federal government is working on a sweeping series of programs that would represent perhaps the biggest intervention in financial markets since the 1930s, embracing the need for a comprehensive approach to the financial crisis after a series of ad hoc rescues.

At the center of the potential plan is a mechanism that would take bad assets off the balance sheets of financial companies, said people familiar with the matter, a device that echoes similar moves taken in past financial crises. The size of the entity could reach hundreds of billions of dollars, one person said.

Questions tonight: Will Sen. Obama support the ultimate agreement? Will Sen. McCain? Will it face serious opposition in Congress?

Your thoughts and comments are welcome. Follow L.A. Land on Twitter here.

-- Peter Viles

Photo: Treasury Secretary Henry Paulson

Credit: L.A. Times

Comments

[Pat]

I think the only answer is to vote with my feet. Canada, I am wanting to defect!

[slipstream]

McCain's actually been out in front on this one. From the NY Times:

"Mr. McCain’s call for a new trust to relieve troubled financial companies of their bad loans — much like the Resolution Trust Corporation, which was created after the savings and loan crisis of the late 1980s — dramatizes how far he has backtracked from a career as a deregulator who opposed bigger government. He made his proposal hours before the Treasury Department and the Federal Reserve disclosed that they were considering a similar approach."

http://www.nytimes.com/2008/09/19/us/
politics/19campaign.html

[Mike P.]

Love this part of the NYT article: "...the financial crisis that Fed and Treasury officials say is the worst they have ever seen."

That is a period at the end of that quote. There is no " since the Great Depression" clause after it.

Which means that the Fed and Treasury are telling us this is worse than the Great (First?) Depression. I guess Greenspan wasn't kidding when he called this a "once-in-a century" event.

Of course, these were the same 'experts' who said there wasn't a problem in the first place, so I don't know what to think.

[Rational Renter]

Futures market up huge for tomorrow. Could be a +500 day.

[Tom Lindmark]

Double or triple that estimate. At least a trillion. It has to be done and will be. In their rush to get out of town, Congress will lard it up and undoubtedly cause more problems. Since we are all now going to be on the hook for a lot of money can we at least leave a bail out of homeowner out of this deal?

[Rational Renter]

Let's look at this very simply. There exist X number of bad assets in the system. The government plans to take on those X assets and be responsible for them. That way the private financial institutions can operate free and clear of that burden. But those bad X assets still exist! They're not going anywhere! It's just now the entire country who is on the line for them instead of a few firms.

Ludicrously bad thinking and dangerous dangerous dangerous...

[Doubledogdare]

No matter how one attacks this debacle, it's going to be immensely expensive and the little guys on Main Street will take the shot in the head.

It's either have the little guys take a $500B hit now or completely undermine the economy and thus trash the remaining value of the savings/investments of the little guy...which then comes back to bite in retirement savings, even bigger pension shortfalls, etc.

It's a damned if you do, damned if you don't situation, and I think the safer bet is to do the bailout (as painful as it is). The risks from the abyss of the total market seizure and impact on the real economy is just too great.

The question then becomes how can we tax the crap out of all the pigmen i-bankers, hedge fund managers, etc so they feel some real pain

[jb]

This is insane - nobody wants this except for a bunch of rich suits. Bernanke and Paulson should be hung and shot. Rally at the Federal Bldg on Sat- Just say no to rich bankers!

[Fred]

How can they do this? The financial system will start the party over again tomorrow. It is so unfair and crooked, stealing from our children to pay for this

[Laker]

Wow...
HALF TRILLION DOLLARS...

I don't know what to say.

[John]

the real terrorists have reared their ugly heads - Paulson, Bernanke, and the whole financial industry

[Irate Taxpayer]

I would like to know where this "half a trillion dollar" figure comes from. Since it appears that the idea came from an Op-Ed piece in the Wall Street Journal a mere THREE DAYS AGO (it's now official that Treasury and the Fed have no idea what to do):

http://online.wsj.com/article/SB122161086005
145779.html

I am inclined to believe that the number was pulled out of thin air. I believe that the true figure will be much, much higher. As in in the trillions. Couldn't we at least wait until the Congressional Budget Office evaluates the plan?

How can policymakers be this irresponsible? Panic on the part of policymakers is only going to make matters worse, and if such a bill gets pushed through in a rush, we are likely to remember the names "Paulson" and "Bernanke", much like we remember the name "Hoover", for generations to come.

[Anon]

Election year pandering gone wild . The deficit floodgates have be opened do damage our economy for many years to come .

[Willie]

I am for no bailout. Let the chips fall where they need to fall. How can they learn if we keep bailing out everything single Dick and Joe down the (Wall) street?

[Doug in Toronto]

Pat: We have space for you whenever you get here. You will notice a few differences from what you're used to, but you'll adapt... Dress warmly ;-)

[Steve]

These strokes do not have a clue, mo matter whio is in office the Fed will print moeny like never before. Your dollar willl be worth half in 10 years. Inflation will exceed the 70s. Between this debacle and Iraq it just confirms that Bush will go down as the worse president in history and I am a Republican. How do you turn a surplus in to a record deficit in only 8 years, only a Texas Rube can accomplish that. Like many I will never vote Rpeublican again, we are broke and cannot afford to police the world morons.

[Jeff]

So -- take that info and use it for the housing market -- if the gov't makes this bailout happen, will that fundamentally allow banks to write down their mortgages (ie, of a 800K mortgage they are owed, they'll get 400K from the US gov't, and they write down what the house-sitter owes to only $400K)?

all that's going to do it prop up prices and there's still a fundamental price to income gap?

what's your take on how this affects housing peter?

[Jenna]

I am livid. Words fail to express how angry I am. I didn't get million dollar bonuses, I didn't use my home like an ATM, I didn't buy a home I couldn't afford. Nonetheless, I am going to have to pay for something that was completely avoidable. It isn't brain surgery to know that selling homes to people who can't afford them was a bad idea and that someday they would have to pay the piper.

[fezco]

Avast! How appropriate that today is 'talk like a pirate day.' Here is 'Paulson the privateer' announcing the pillaging of the middle class. He is sending my hopes of owning a home down to 'Davey Jones' Locker,' the scurvy dog.
http://www.talklikeapirate.com/

[tonylogan]

People complain that Americans are apathetic, but I think we just do not know what we can do to stop this.

If someone could please give me an address to go to, I would gladly join in a protest march.

[syscom3]

And I suppose all of those corporate bandits will still get bonus's and golden parachutes.

[LA-renter]

From your LAT:

"...In a meeting between [sic] lawmakers and... Paulson... and Bernanke, the top officials suggested... THE GOVERNMENT WOULD be able to sell off the assets to recover taxpayers' money and PERHAPS EVEN TURN A PROFIT."

Newspaper editors need to include a "(laugh)" or ";)" after statements like this, otherwise some readers might take this stuff seriously.

[RB]

no worries, the Republicans also told us that their war in Iraq was only going to cost taxpayers "50-60 billion dollars." no problem. I'm sure the Bush administration will just tap into their huge budget surplus and all will be fine. I mean, they are the most transparent administration the world has ever known....

[gregfromcali]

Neither of the candidates will go against this and potentially alienate themselves from the stupid over-leveraged homeowner vote.

[RB]

John McCain, "Hank Paulson said what!" and then peed his pants. Sarah Palin...well, Sarah Palin didn't blink!