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Monday, July 20, 2009 2:25 PM

TARP Special Investigator Says Bailout Total May Reach $23.7 Trillion

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Some numbers are so large they simply become incomprehensible.

Remember when costs of the bailout were projected to be $0.5 Trillion, then $1 Trillion, then $3 Trillion.

Now, Neil Barofsky, special inspector general for the Treasury’s Troubled Asset Relief Program says U.S. Rescue May Reach $23.7 Trillion.

U.S. taxpayers may be on the hook for as much as $23.7 trillion to bolster the economy and bail out financial companies, said Neil Barofsky, special inspector general for the Treasury’s Troubled Asset Relief Program.

The Treasury’s $700 billion bank-investment program represents a fraction of all federal support to resuscitate the U.S. financial system, including $6.8 trillion in aid offered by the Federal Reserve, Barofsky said in a report released today.

“TARP has evolved into a program of unprecedented scope, scale and complexity,” Barofsky said in testimony prepared for a hearing tomorrow before the House Committee on Oversight and Government Reform.

Costs include $2.3 trillion in programs offered by the Federal Deposit Insurance Corp., $7.4 trillion in TARP and other aid from the Treasury and $7.2 trillion in federal money for Fannie Mae, Freddie Mac, credit unions, Veterans Affairs and other federal programs, he said.

Barofsky offered criticism in a separate quarterly report of Treasury’s implementation of TARP, saying the department has “repeatedly failed to adopt recommendations” needed to provide transparency and fulfill the administration’s goal to implement TARP “with the highest degree of accountability.”

As a result, taxpayers don’t know how TARP recipients are using the money or the value of the investments, he said in the report.
Banks Fail to Make Adequate Loan-Loss Provisions

Moody's says Banks Fail to Make Adequate Loan-Loss Provisions.
Banks have failed to make adequate provision for the losses on loans and securities they face before the end of next year, Moody’s Investors Service said.

U.S. banks may incur about $470 billion of losses and writedowns by the end of 2010, which may cause the banks to be unprofitable in the period, the ratings company said in a report published today. “Large loan losses have yet to be recognized in the banking system,” Moody’s said. “We expect to see rising provisioning needs well into 2010.”

Banks and financial firms worldwide have reported losses and writedowns of $1.5 trillion since the credit crisis began in 2007, according to data compiled by Bloomberg. New York-based Citigroup Inc. has reported $112 billion of writedowns, more than any other firm, the data show.

“The fundamentals of financial institutions are still traveling on a downward slope,” Moody’s said. “No-one should consider recent improvements as assurance that the current rebound can be sustained.”
Fed's Game is Delay and Pretend

In spite of writing off $112 billion, Citigroup is still sitting on $800 billion in SIVs, off its balance sheet, not marked to market. What's that worth? No one really knows and the Fed does not want anyone to find out either. That is why mark-to-market accounting is still suspended.

Geithner's PPIP also masks price discovery (on purpose) given the public is on the hook for 93% of the losses. The PPIP encourages speculation (at best), and at worst is a purposely fraudulent scheme to dump assets on the backs of taxpayers to benefit bondholders.

The Fed's game is to delay discovery and pretend things are getting better. Things might be for some assets. In the meantime however, data suggests more foreclosures, more credit card writeoffs, and more commercial real estate losses. Is the Fed winning or losing the battle? On the surface, with no price discovery, it's hard to know. However, if you give any credence to Neil Barofsky, the Fed may be losing a $23.7 trillion battle.

Mike "Mish" Shedlock
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