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Treasury officials are estimating that the price tag of financial bailout should amount to around $89 billion. This number is far below the $250 billion the Congressional Budget Office estimated last year or other analysts that put the all-in number at $1 trillion or more.
Here is the article:
http://www.nytimes.com/2010/04/18/business/economy/18gret.html?ref=business
Why are there so many different estimates and why is $89 billion considered a bargain?
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Simply from reading this article, it looks like the $89B was more of a simple base estimate and did not include everything. It did not include FDIC payments among other things.
ReplyDeleteThe part I found interesting was this quote, "Lending will continue to shrink and real economic activity is suffering. The cost of ‘extend and pretend’ goes into the trillions of dollars of lost economic activity." How can one estimate this? Without any government intervention whatsoever, would that have been different?
I didn't realize while the initial bailout discussions were going on that there were so many variable involved in the real values of these things. Additionally, I consider myself relatively well informed and even still it is difficult to keep all the different legislation seperate including the american recovery and reinvestment act, TARP, and Emergency Economic Stabilization Act among others.
ReplyDeleteThis is a pretty interesting article, the 89 billion as Noah said does not really encompass the totals costs that have come as a result of the financial crises.
ReplyDeleteA quote from the article that does kind of put the impact of the financial crisis on the world in perspective stated, "World output last year was thought to have been 6.5 percent lower than it might have been had the crisis not occurred. Globally, this translates to $4 trillion in lost output"
that is a massive impact on the global economy and it just shows how influential a major financial system is on the world economy.
To me this seems like just another misrepresentation of information, similar to how the banks were leaving numbers off the books...When will the lying end? It's great to be positive, but not if it's unrealistic...
ReplyDeleteI absolutely agree Dana, the government has motive to manipulate numbers just like CEO's and CFO's do. The more the government can downplay the cost of the bailout the better they will look for having implemented it and spurring the economic turnaround. If the price tag is reported as astronomical than the average American would say "yea it helped but at a ridiculous cost."
ReplyDeleteI hope that this number is correct and the bailout won't cost as much as expected but it seems like as everyone has pointed out that it is not incorporating everything and has left out some key components. If this number was truly correct that would be great because it would help with the overall budget, as the government wont have to spend the additional $160 billion they budgeted for the bailout.
ReplyDeleteI agree that it would be refreshing to hear the bailout was not as much as predicted. I think the government is definitely trying to minimize the bad buzz about the stimulus to give society the perception that it was successful. It seems they are either doing it to boost peoples confidence in our economy or simply trying to achieve personal political gains. Ultimately I just wish they would be more upfront and truthful about numbers of such extreme amounts.
ReplyDeleteLike others have said, the $89 billion number is misleading because it doesn't include possible liabilities that the government has taken on. As mentioned in 'This Time is Different', the government has guaranteed an unknown amount of toxic assets as well as implicitly backed a few of the big banks. I really don't think we will know the true cost of the bailout for years, maybe even a decade.
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