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$23.7 Trillion in Government Spending is a Joke

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July 22, 2009 – Comments (2) | RELATED TICKERS: FNMA , FMCC , C

That's right, the $23.7 trillion estimate that special investigator Neil Barofsky came up with on government support for financial institutions is laughable. Laughable in that it's so unrealistic.

Thanks to Morgan Housel for pointing out this article to me. From the New York Times:

 

"But in the report accompanying his testimony, Mr. Barofsky conceded the number was vastly overblown. It includes estimates of the maximum cost of programs that have already been canceled or that never got under way.

"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."

 

So $23.7 trillion is nowhere near a realistic estimate of what will be spent, but hey, it made eye-catching headlines for a day right?

Matt

2 Comments – Post Your Own

#1) On July 22, 2009 at 3:50 PM, russiangambit (29.14) wrote:

$23.7 is the value at risk. If the true losses come to just 10% of it, it is still an enourmous amount of money. The number is so shocking, I think it was given to draw attention to the problem. It doesn't discredit how great the problem is.

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#2) On July 23, 2009 at 4:22 PM, TMFKopp (98.34) wrote:

Here's Morgan's article today about this...

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