TV Runs Wild With Insane Bailout Cost Estimate


When you hear something that sounds like nobody could possibly be so crazy as to do it, one thing worth considering is that possibility that nobody is actually doing it. Thus when you find yourself, as Politico did, with the headline “Bailouts could cost U.S. $23 trillion” it’s worth asking: Really? $23 trillion? The total value of all goods and services produced in the United States is $13.8 trillion. So pretty clearly the government could not, in fact, spend $23 trillion on bailouts. As Pat Garofalo explains, the number $23 trillion is the result of an extremely crude tallying method, “To arrive at $23 trillion, Barofsky simply added together every financial rescue program that has been proposed, including those that were discontinued or never even started.”

In particular, it involves totaling up the nominal value of every single loan guarantee. Think back to before the financial crisis. You could have totaled up the value of every single FDIC insured bank account in the United States and come up with a fantastical sum that deposit insurance “could” cost the American taxpayer. In the real world, however, a big part of the point of these guarantees is precisely to prevent runs and make failure relatively unlikely. Universal failure is not going to happen. Floyd Norris breaks it down:

It also assumes that every home mortgage backed by Fannie Mae or Freddie Mac goes into default, and all the homes turn out to be worthless. It assumes that every bank in America fails, with not a single asset worth even a penny. And it assumes that all of the assets held by money market mutual funds, including Treasury bills, turn out to be worthless. It would also require the Treasury itself to default on securities purchased by the Federal Reserve system.

On the one hand, there’s no way for this to happen. On the other hand, were it to happen there would be no way to pay. And on the third hand, the money would be worthless anyway so who cares? As Pat observes, none of this stopped cable news from running with an alarmist story:

I got into writing about politics because I like the idea of trying to improve people’s understanding of the issues. I wonder sometimes what gets people who cover politics on TV motivated.