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Will TARP cost taxpayers $23.7 trillion?
Neil Barofsky, special inspector general for the Troubled Asset Relief Program
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Kai Ryssdal: We're going to take a second to revisit the eyepopping number we ended the broadcast with yesterday: $23.7 trillion. It comes courtesy of Neil Barofsky. He's the Special Inspector General for the Troubled Asset Relief Program. In other words, Barofsky's the guy who's supposed to be keeping track of exactly how that $700 billion banking bailout is being spent. And he's doing that. But in a report he delivered today, Barofsky did something else, too. He outlined what he believes is the U.S. government's total possible liability as a result of its response to the financial crisis. Nearly $24 trillion. An interesting number to know, I suppose. But is it right? And does it matter? Marketplace's Steve Henn reports.
STEVE HENN: Remember last fall when $700 billion sounded like a lot of money? Well according to Neil Barofsky, it's just a tiny fraction of the $23.7 trillion the U.S. has at risk in the bailout.
BARRY Ritholtz: My initial response was this was a WTF number. And you know what those initials stand for.
Barry Ritholtz is the author of "Bailout Nation." He says to get this figure, the banking bailout's chief watchdog included the price of every Federal program, even ones that haven't really gotten off the ground.
Then Barofsky's office assumed everything that possibly could go wrong would. That would mean that every federally guaranteed mortgage defaults, every bank collapses.
Ritholtz says the government really hasn't really spent anywhere close to $23 trillion. Instead, he says this is Barofsky's estimate of the total size of the governments' guarantees to the financial sector.
Ritholtz: Yes, it's money at risk. Now even though the vast majority of it is not a high risk it is still money at risk. It is still possible that events could go awry that leads to a healthy chunk of it that money not coming back to the taxpayer.
Simon Johnson at MIT quibbles with some of the calculations that Barofsky used to come up with his $23 trillion figure.
SIMON Johnson: But I think what Mr. Barofsky's signaling is there are very big fiscal casts both obvious and hidden involved in this rescue.
Big indeed. The amount of money at risk is almost eight times the size of the federal budget. And if government ends up losing just 10 percent, taxpayers will be stuck with a multi-trillion dollar bill.
In Washington, I'm Steve Henn for Marketplace.
I expect more from Marketplace than this story. The only way the $23t figure can be reached is if a nuclear holocaust made the entirety of the US uninhabitable, in which case, we have bigger problems. Anybody with a day or two of Risk Management 101 would know that the calculation would be exposure minus residual (value of the mortgage minus what it could be sold for after being repossessed, for example), times the risk of default. The "even 10%" figure cited at the end is still silly. 1% *might* be a better figure.
Nice plug for his book, though.
I was extremely disappointed by your coverage of the "$24T TARP". I rely on your program for real news and this was faux news. The $24T figure assumes every single line of credit is taken up fully, and every single asset supporting it turns to zero. This is so unlikely that the story amounts to nothing more than the repetition of fear jingo. The auditor who produced this fantastic and meaningless figure should lose his job. Please, I can get better from People magazine. $20 oil was barely better. Why give that author airtime. Millions of Indians and Chinese will OBVIOUSLY not be signing up for the American Lifestyle at $8 or $12 or $20 a bbl. The whole premise is silly. How about Bartlett Manufacturing Company in Cary, IN and the rapid uptick in the decline of US manufacturing. There is a REAL story to report on.
