Re: How big a bailout?

[David Farber <dave () farber net>]

Begin forwarded message:

From: James Love <james.love () cptech org>
Date: September 21, 2008 9:51:51 AM EDT
To: dave () farber net
Cc: ip <ip () v2 listbox com>
Subject: Re: [IP] Re:    How big a bailout?

It would also be interesting to ask, how much of the bailout is
benefiting investors who do not reside in the United States? I think we
are past the point of U.S. businesses being owned solely by U.S.
investors.  This is a U.S. taxpayer bailout to a global group of
investors.  A fair amount of the bailout will benefit investors who are
recycling soaring revenues from foreign oil production.   Jamie

On Sat, 2008-09-20 at 12:53 -0400, David Farber wrote:
> Begin forwarded message:
>
> From: "Dave Wilson" <dave () wilson net>
> Date: September 20, 2008 10:38:38 AM EDT
> To: dave () farber net
> Subject: Re: [IP] How big a bailout?
>
>
> Speaking very solely for myself on this....
>
> You can get a pretty straightforward analysis of expenditures and
> total costs of the savings and loan bailout from eighties (through
> 1999) from the Federal Deposit Insurance Corporation here
> http://tinyurl.com/6zlskk (note that these figures include spending by
> both the Federal Savings and Loan Insurance Corporation, which
> ultimately became insolvent at the end of 1986, and the establishment
> of the Resolution Trust Corporation in 1989).
>
> To summarize: From 1986-95, over 1,000 thrifts failed, forcing the
> government to take control of about half a trillion in assets, which
> were then repackaged and resold. As of 1999, losses to U.S. taxpayers
> totaled $124 billion (the thrift industry paid for another $30
> billion, for a total of about $153 billion in total losses for the
> cleanup). Over the course of the crisis, the number of thrifts
> declined by about 50 percent, to 1645. The authors of the study do not
> include financing costs (essentially interest on the money
> appropriated for RTC expenditures; I think that's not unreasonable, as
> assets taken by the RTC increased in value over time so I expect it's
> probably close to a wash).
>
> It's worth noting that the initial estimate of the savings and loan
> bailout were woefully low, something on the order of 400 thrifts with
> about $200 billion in assets. Those number were waaaay off: 800
> thrifts and $400 billion. In the first year.
>
> I mention this because part of the reason we have reached this crisis
> point is due to what you can think of as an optimistic bias among
> traditional economic analysis. The old joke that economists have
> correctly predicted 15 of the last 7 recessions is actually completely
> backwards (yes, I understand it's not funny the other way, thanks). My
> point is that economic analysis almost never nails an upcoming
> downturn (there's some mechanics to this, obviously; if we all know a
> recession is coming in six months, we'll stop spending now, and thus
> the recession will come immediately and not six months from now). But
> economic analysis is frequently based on the past, more specifically
> the immediate past. Sometimes that makes sense -- the sun will indeed
> rise in the East tomorrow -- but it also means you're going to miss
> the inflection points. Sometimes in a very big way...
>
> Thus, we have spent much of the 21st century listening and watching as
> very smart guys declare that a decoupling of housing prices from
> family incomes isn't anything to worry about, that the housing crisis
> is limited to the sub-prime market, then that it has been "contained"
> to the mortgage industry in general, then that a general decline in
> home equity will not affect the economy, and then they wake up and
> start throwing enormous amounts of money at lenders to rescue them
> when institutions simply refused to lend to each other, and then they
> say that a single investment bank implosion does not place other
> institutions at risk, and finally here we are, acknowledging that all
> these systems are in fact linked together -- that risk never goes
> away, no matter how the risk is spread out -- and we've got to do
> something immediately or spend a decade trying to recover from
> something that might actually be unprecedented.
>
> -dave
>
> On Sat, Sep 20, 2008 at 5:26 AM, David Farber <dave () farber net> wrote:
>
>
>        Begin forwarded message:
>
>        From: "David Lesher" <wb8foz () panix com>
>        Date: September 19, 2008 11:13:11 PM EDT
>        To: dave () farber net (David Farber)
>        Subject: How big a bailout?
>
>        Prof F:
>
>        I'm wondering how deep in the hole we are all going
>        on these bailouts.
>
>        Can we compare it to the Resolution Trust Corp?
>        How much money was plowed into it;
>        how much was recovered?
>
>
>
>
>
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