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Europe tries to calculate a bailout fund

Heidi Moore Oct 7, 2011

Europe tries to calculate a bailout fund

Heidi Moore Oct 7, 2011

Kai Ryssdal: There are big meetings in Europe this weekend. It’s the usual: debt, Greece, bailout — you know the rest.

Latest word from the continent is that they’re thinking it’s time for their own version of the TARP, our $700 billion bailout that at least put a floor under our financial panic. $700 billion was a whole lotta money. Still is.

But get a load of the rumors from Europe: $2.5 trillion to $5 trillion. Where’d they get the numbers?

From New York, Heidi Moore has the story.

Heidi Moore: How do you figure out the size of a bailout? It’s kind of like planning a decisive military victory.

Tony Fratto: Shock and awe.

John Douglas: This is what I would like to refer to as the Colin Powell Shock and Awe Doctrine of Bailouts.

Those were the answers I heard from Tony Fratto and John Douglas. They’re both veterans of financial panics. Fratto worked with Treasury Secretary Hank Paulson in 2008. Douglas was the general counsel of the FDIC in the savings and loan crisis of the late ’80s. Douglas says regulators want to flood the banks with enough money to leave no doubt that they’re open for business.

Douglas: It’s intended to get the marketplace to relax so that they’re comfortable dealing with these institutions on a daily basis.

So the government essentially makes up the size of the bailout. Fratto explains there’s no other way to do it.

Fratto: When that panic sets in, there’s no mathematical model that can adequately estimate what those losses might be. It just doesn’t exist. And that’s why you get these wild estimates.

Even so, two to four trillion euros for Europe? That’s at least four times as big as the size of the U.S. bailout. Yes, their banks are much bigger than ours. But Fratto says he’s skeptical of the number.

Fratto: I don’t know how they’re possibly going to raise that amount of money.

If it’s any comfort, Europe may not need to draw down every last trillion. In the U.S., we had lots of TARP money left over.

In New York, I’m Heidi Moore for Marketplace.

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