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Gov’t on Hook for $8T+

Mark at Fund My Mutual Fund summarizes the government’s quickly amassing obligations, and has reached a conclusion – similar to Phil’s - that it would be more efficient and more fair for the government to have simply paid off a percentage of mortgages.  "[G]ive everyone with a mortgage a 50% payoff and all these toxic instruments in the system become "paid off" or a much smaller risk," and give government an equity interest in the homes and the taxpayer is even better off on this deal.

Bloomberg: U.S. Government Now on Hook for $8 Trillion+ 

The Federal Reserve is now Atlas…. let’s just hope they do not shrug….

During the war of the TITANS, ATLAS stormed Olympus and threatened the Gods. And as punishment for this war crime, ZEUS sentenced him to hold up the heavens and bear their weight on his shoulders forever

I was going to post this story a few days ago when the U.S. Government was ONLY on the hook for $7.7 Trillion but with yesterday’s additional $800 Billion, the entry needs to be edited (by the day it seems) The bill now could reach $8.3+ Trillion. This is staggering folks – just staggering; I don’t think people can even wrap their minds about this sort of data. It is our typical American kick the can down the road – we’ll worry about the implications of it all once we get out of this current mess – this is the U.S. mode of operation for multiple decades now. I do believe from what I am seeing lately that the Federal Reserve is now of mind of "print at all costs" – the money supply data is simply in "hockey stick" formation and they’ll deal with the ramifications of their actions at a later date. For now, they are going to print like there is no tomorrow. (and let me be clear about the headline – technically the Federal Reserve is not part of the US Government)

This is an entry to print and hand to your friends who think we are "only" giving $700B of TARP money – if they’re steaming mad about that, well that is now less than 10% of what we have exposure to. The scary thing? If we marked to market the whole banking system collapses so for all the problems we have morally with this, it might just be NECESSARY to flood the system with this many pesos if we don’t want the end of the entire US financial system.

  • If you mark to market today, the banking system is bankrupt,” Tobin said. “So what do you do? You try to keep it going as best you can.” “Mark to market” means adjusting the value of an asset, such as a mortgage-backed security, to reflect current prices.

But the distribution of said grandchildren money could of been a lot fairer to Main Street …

Effectively the US produces $13 Trillion each year… so we’re on the hook for (potentially) over half of a year of every dollar produced in this country. Other incredible statistics

  • The money that’s been pledged is equivalent to $24,000 for every man, woman and child in the country. It’s nine times what the U.S. has spent so far on wars in Iraq and Afghanistan, according to Congressional Budget Office figures. It could pay off more than half the country’s mortgages.

Shouldn’t we just have done the latter? I mean toxic mortgages are the nexis of the problem (the largest share) – give everyone with a mortgage a 50% payoff and all these toxic instruments in the system become "paid off" or a much smaller risk. And the "common man" wins from this socialism – rather than the Upper East Side Manhattan man. Nah, but that’s not American – Cramerica – for the corporation, by the corporation.

From a "dated" story 48 hours ago (note the amounts have increased since)

  • The U.S. government is prepared to provide more than $7.76 trillion on behalf of American taxpayers after guaranteeing $306 billion of Citigroup Inc. debt yesterday. The pledges, amounting to half the value of everything produced in the nation last year, are intended to rescue the financial system after the credit markets seized up 15 months ago.
  • The unprecedented pledge of funds includes $3.18 trillion already tapped by financial institutions in the biggest response to an economic emergency since the New Deal of the 1930s, according to data compiled by Bloomberg. Federal Reserve lending last week was 1,900 times the weekly average for the three years before the crisis. The bailout includes a Fed program to buy as much as $2.4 trillion in short-term notes, called commercial paper, that companies use to pay bills, begun Oct. 27, and $1.4 trillion from the FDIC to guarantee bank-to-bank loans, started Oct. 14.
  • Citigroup received $306 billion of government guarantees for troubled mortgages and toxic assets. The Treasury Department also will inject $20 billion into the bank after its stock fell 60 percent last week.
  • “It’s unprecedented,” said Bob Eisenbeis, chief monetary economist at Vineland, New Jersey-based Cumberland Advisors Inc. and an economist for the Atlanta Fed for 10 years until January. “The backlash has begun already. Congress is taking a lot of hits from their constituents because they got snookered on the TARP big time. There’s a lot of supposedly smart people who look to be totally incompetent and it’s all going to fall on the taxpayer.”
  • “There is a lack of transparency here and, given that the Fed is taking on a huge amount of credit risk now, it would seem to me as a taxpayer there should be more transparency,” Kasriel said.
  • Bernanke’s Fed is responsible for $4.74 trillion of pledges, or 61 percent of the total commitment of $7.76 trillion
  • The FDIC, chaired by Sheila Bair, is contributing 20 percent of total rescue commitments. The FDIC’s $1.4 trillion in guarantees will amount to a bank subsidy of as much as $54 billion over three years, or $18 billion a year, because borrowers will pay a lower interest rate than they would on the open market,
  • Congress and the Treasury have ponied up $892 billion in TARP and other funding, or 11.5 percent.
  • The Federal Housing Administration, overseen by Department of Housing and Urban Development Secretary Steven Preston, was given the authority to guarantee $300 billion of mortgages, or about 4 percent of the total commitment, with its Hope for Homeowners program, designed to keep distressed borrowers from foreclosure.

Here is a big one; I actually think this could be among the biggest liabilities when all is said and done!

  • Bernanke and Paulson, former chief executive officer of Goldman Sachs, have also promised as much as $200 billion to shore up nationalized mortgage finance companies Fannie Mae and Freddie Mac, a pledge that hasn’t been allocated to any agency. 

I totally missed this one?? Wow – I must of been asleep when this one was announced

  • The FDIC arranged for $139 billion in loan guarantees for General Electric Co.’s finance unit.

More… so on top of all these handouts we give tax breaks to the guilty parties – we talked about this in [Nov 13: Washington Post - A Quiet Windfall for US Banks]

  • Some of the bailout assistance could come from tax breaks in the future. The Treasury Department changed the tax code on Sept. 30 to allow banks to expand the deductions on the losses banks they were buying

Then yesterday, another $800 Billion

  • The Federal Reserve took two new steps to unfreeze credit for homebuyers, consumers and small businesses, committing up to $800 billion. The central bank will purchase as much as $600 billion of debt issued or backed by government-chartered housing-finance companies. It will also set up a $200 billion program to support consumer and small-business loans, the Fed said in statements today in Washington.
  • Clearly, the Fed and the Treasury are beginning to take a large amount of credit risk.”
  • The Fed won’t be removing cash from other parts of the financial system to make up for the purchases, government officials told reporters on a conference call. They rejected any comparison with Japan’s so-called quantitative easing effort to combat deflation (no of course not – we’re better than Japan – how dare you compare us to a country with asset busts in both the stock market and real estate market. That’s not us, do NOT call us Japan! Japanese people actually save money – don’t you dare call us savers – we’re better than that.)

I just wonder if they will ever get around to asking "how we got here" and "what misguided beliefs as a nation took us to this stage". Why do I doubt it?

CNBC has
a full list here; it is staggering when itemized – I won’t bother to copy it; information freaks can follow the link.

Gobble Gobble.


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