Memo to journalists -- as Kevin Drum points out, the cost of the various financial bailouts, loan guarantees, etc. are being wildly inflated in press reports:
This stuff has gotten completely out of hand, with "estimates" of the bailout these days ranging from $3 trillion to $7 trillion even though the vast bulk of this sum comes in the form of loan guarantees, lending facilities, and capital injections. The government will almost certainly end up spending a lot of money rescuing the financial system (I wouldn't be surprised if the final tab comes to $1 trillion over five years, maybe $2 trillion at the outside), but it's not $7 trillion or anything close to it. People really need to stop throwing around these numbers as if the bailout is comparable to World War II or something. That's not reality based, folks.
Josh Marshall made a similar point:
We've heard a number of reports over recent days putting the total government bailout costs at several trillions of dollars. But there are a lot of apples and oranges being thrown around. There are directly appropriated US government spending on the TARP. Then there's Fed lending, which is different. Then there are various loan guarantees and agreements to backstop questionable assets. These are all very different kinds of expenditures and some of them don't even really count as 'spending' in the ordinary sense we understand the term. To start disentangling the mess, we've put together an initial run down of the many different kinds of spending, loans and loan-guarantees and what the amounts are with each.
This is one of those times when it would be really helpful to have a numerically literate press corps (see also the post above).
Big-government proponents have all the reason in the world to maintain the ambiguity about what is an outright expenditure (or in Obamaese, an "investment") and what is a loan or purchase of obligations much of which is likely to be repaid. Then when the repayments start flowing in, they can be treated as a windfall for the Government, ready to be spent on the wishlist of new Federal initiatives.
Posted by: Rob | November 29, 2008 at 11:01 AM
I agree with Drum and Marshall that it would be better if the media would explain the different types of commitments and the ultimate amount likely to be spent for each category. In addition, I'd like to see the media provide some sort of risk analysis to show what the spending would be under various optimistic and pessimistic scenarios.
I agree with Drum that under an expected scenario the likely ultimate payout is likely to be affordable, but I'm concerned about the ultimate payout in the bad scenarios. If the US goes into a deep recession (or, Heaven forbid, a recession) then many of the guarantees would come due. The payout could then be several trillion dollars. And, this amount would come due just when the deep recession reduced tax receipts to the government. These bailout obligations would limit the government's ability to fight the recession by cutting taxes or by providing a stimulus package to all Americans.
In short, the bailout will probably be affordable, but the government has taken on an enormous risk that is without historical precedent. The reporting of scary numbers like $7 trillion has the virtue of informing the ordinary citizen that there is a big risk involved.
Posted by: David | November 30, 2008 at 05:10 PM
Parenthetical phrase above should have been:
(or, Heaven forbid, a depression)
Posted by: David | November 30, 2008 at 05:32 PM