To rescue the financial system, the government has committed more than $7.7 trillion on behalf of American taxpayers -- or half the value of everything produced in the nation last year.
In the biggest response to an economic emergency since the New Deal of the 1930s, the Federal Reserve has committed $4.75 trillion; the Federal Deposit Insurance Corp., $1.55 trillion; the Treasury Department, $947 billion; and the Federal Housing Administration, $300 billion, according to data compiled by Bloomberg. The remaining pledge, as much as $200 billion to bolster Fannie Mae and Freddie Mac, hasn't been allocated to any agency.
Including more than $300 billion earmarked for Citigroup Inc. on Sunday, financial institutions have tapped $3.17 trillion of the funds, according to data compiled by Bloomberg. Federal Reserve lending last week was 1,900 times the weekly average for the three years before August 2007, when the credit markets seized up.
When Congress approved Treasury's $700 billion Troubled Asset Relief Program on Oct. 3, Fed Chairman Ben Bernanke and Treasury Secretary Henry Paulson acknowledged the need for transparency and oversight. Now, regulators are committing far more money while refusing to disclose loan recipients or reveal the collateral they are taking in return.
"Whether it's lending or spending, it's tax dollars that are going out the window, and we end up holding collateral we don't know anything about," said Congressman Scott Garrett, a New Jersey Republican who serves on the House Financial Services Committee. "The time has come that we consider what sort of limitations we should be placing on the Fed so that authority returns to elected officials as opposed to appointed ones."
Bloomberg News tabulated data from the Fed, Treasury and FDIC, and interviewed regulatory officials, economists and academic researchers to gauge the extent of the government's rescue effort. Bloomberg, which has requested details of Fed lending under the Freedom of Information Act, filed a federal lawsuit against the central bank Nov. 7 seeking to force disclosure of borrower banks and their collateral. Collateral is an asset pledged to a lender in the event a loan payment isn't made.
"Some have asked us to reveal the names of the banks that are borrowing, how much they are borrowing, what collateral they are posting," Bernanke said Nov. 18 to the House Financial Services Committee. "We think that's counterproductive."
The $7.76 trillion 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.
William Poole, former president of the Federal Reserve Bank of St. Louis, said the two programs are unlikely to lose money. The bigger risk comes from rescuing companies perceived as "too big to fail," he said.
The government committed $29 billion to help engineer the March takeover of Bear Stearns Cos. by New York-based JPMorgan Chase & Co., and $122.8 billion (in addition to TARP allocations) to bail out New York-based American International Group Inc., once the world's largest insurer. Most recently, Citigroup received $306 billion of government guarantees for troubled mortgages and toxic assets. The Treasury also will inject $20 billion into the bank after its stock fell 60 percent last week.
"No question there is some credit risk there," Poole said.
The worst financial crisis in two generations has erased $23 trillion, or 38 percent, of the value of the world's companies and brought down three of the biggest Wall Street firms. Regulators hope the rescue will contain the damage and keep banks providing the credit that is the lifeblood of the economy.
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 United States has spent so far on wars in Iraq and Afghanistan, according to Congressional Budget Office figures. It could pay off more than half of the country's mortgages.
"It's unprecedented," said Bob Eisenbeis, chief monetary economist at Vineland, N.J.-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."
No comments:
Post a Comment