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REUTEMAN: The high price of rescuing the country from financial disaster

The Rocky

Published November 29, 2008 at 12:05 a.m.

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Is the war in Iraq the most significant legacy of the George W. Bush presidency? No, a Republican friend insisted Friday morning. Bush will be remembered most for the fact that no terrorist attack has hit U.S. shores since Sept. 11, 2001, he insisted.

Personally, I think the most protracted legacy of the Bush Years will be the amount already pledged to rescue the country from financial disaster - $8.45 trillion, with two months to go in his second term.

True, the amount does not equate to that much in expenditure. Much of it is in the form of loan guarantees. It also includes government investment in troubled companies that stands a decent chance of a some return for taxpayers, maybe even a profit.

Even so, it's an extraordinary monetary commitment, unprecedented in history. Even loan guarantees carry risk that put taxpayers on the hook for any defaults.

Bloomberg News ran the numbers earlier this week. It came up with $5.6 trillion in Federal Reserve programs, $1.5 trillion in loan guarantees by the Federal Deposit Insurance Corporation, $1.1 trillion in Treasury Department programs and $300 million in programs from the Federal Housing Administration.

The New York Times also tabulated the bailout data this week, coming up with a lesser figure of $7.8 trillion. The Times figures $1.7 trillion is in the form of loans to companies, which are using hard-to-sell securities as collateral. Outright government investments total $3 trillion - the feds have purchased stock and corporate debt, and plan to buy mortgages. And the Times figures the government is guaranteeing $3.1 trillion in corporate bonds, money market funds and money in some deposit accounts.

I'm not in position to pass judgment on the size of the commitment versus the size of the problems that triggered it. But I would point out a few things that are troublesome. Congress barely passed the Treasury Department's $700 billion bailout plan in September. Many congressmen simply did not want to be accountable to voters for such an amount. Now we find the commitment is roughly 14 times that amount, mostly through the actions of unelected federal regulators.

"Whether it's lending or spending, it's tax dollars that are going out the window and we end up holding collateral we don't know anything about," Congressman Scott Garrett, a New Jersey Republican on the House Financial Services Committee, told Bloomberg.

To put things in better perspective, I'm going to use the work of Jim Bianco of Bianco Research, an outfit whose work is often used by the Associated Press, USA Today and the Washington Post. I found these numbers on Barry Ritholz's economics blog, The Big Picture.

Bianco has adjusted these numbers for inflation and concludes that the current financial rescue plan already has cost more than all of them combined:

* World War II: $3.6 trillion

* Marshall Plan: $115.3 billion

* Louisiana Purchase: $217 billion

* Race to the Moon: $237 billion

* S&L Crisis: $256 billion

* Korean War: $454 billion

* The New Deal: $500 billion (estimated)

* Invasion of Iraq: $597 billion

* Vietnam War: $698 billion

* NASA: $851.2 billion

That's a total of $7.52 trillion for the 10 of the biggest expenditures in the U.S. history. We're committing more now to stave off a depression.

"The problem is, the more you go in this direction, the harder it is to turn around and the harder your exit strategy is," former Fed governor Laurence M. Meyer told the Times this week. Indeed, how can Congress continue to spurn the auto industry's request for $25 billion in aid when the amount now seems paltry by comparison?

President-elect Obama's hands certainly are tied by this legacy. He and his advisers are talking about their own rescue plan, costing in the neighborhood of $500 billion to $700 billion. But Obama cannot spend freely, with a burden of federal debt that surely will last for generations. When will the buck stop? Is this money well-spent? Disaster still looms if it's not.

To comment on this column, go to RockyMountainNews.com/business.

Comments

  • November 29, 2008

    6:29 a.m.

    Suggest removal

    TeresaBinstock writes:

    The higher our national debt, the more we become enslaved to families and individuals who own the government bonds whereby that debt is financed. Jackson and Hamilton were well aware of this issue: Jackson wanting to avoid a national debt's bonds of virtual slavery, Hamilton wanting to deliver national resources unto the ultra-wealthy via interest payments on national indebtedness. Bush has served well those who profit from the increased debt.

  • November 29, 2008

    8:20 a.m.

    Suggest removal

    milesd writes:

    Make no doubt...the crisis has been caused by investment/accounting/regulatory fraud.
    Those who are responsible should pay.
    If culpability is not established and commensurate punishment is not administered, and regulatory changes not implemented to prevent this from happening again, then what is there to prevent this from happening again?
    This crisis tells us clearly, how totally corrupt our system is.

  • November 29, 2008

    1:17 p.m.

    Suggest removal

    HopiMedicineMan writes:

    Our most expensive programs seem to be the most galling, given the return. These boondoggles were paid for by basic industry, petroleum, mining, rust belt manufacturing. Industry by America is gone now except for my bead stringing.