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XMFSinchiruna (26.56)

Crisis Tally Made Easy: On the Road Towards $23.7 Trillion!



July 20, 2009 – Comments (13)

Wow ... Now I wish I'd been paying attention to this process all along.

Neil Barofsky, the Special Inspector General assigned to keep tabs on execution of the TARP program is preparing to issue its second quarterly oversight report to Congress tomorrow, and the details are looking rather juicy from this Fool's vantage point.

This Bloomberg article [] cites Barofsky's estimate that before this is over, the crisis tally (which I stopped trying to count at $13.5 trillion [] for logistical reasons) will reach an eye-popping $23.7 trillion! Tracking the total of potential outlays is the same methodology I employed in my periodic crisis tallies, so the $23.7 trillion estimate is directly relatable to the $13.5 trillion number I reported in March. So far, huge portions of the existing programs have not been utilized, but this assessment strongly suggests that the programs as presently structured will indeed be brought to their stated maximums if a further 40% increase in scale waits in the wings.

"Barofsky’s estimates 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." Of course, Treasury spokesman Andrew Williams tried to brush off the estimate as insignificant because it represents only the maximum total outlays through the program, but this Fool has consistently argued that the scope of the programs as authorized remains a crucial measure of the scale of the crisis that remains before us. While talking heads are busy telling you the worst is over, the guy whose job it is to oversee the bailouts expects a further 40% increase in the total scale of crisis interventions by the Fed and the federal government from current levels. However you slice it, this is one moldy piece of bread America is about to swallow.

For Fools looking to do some homework, here's a link to the first quarterly report issued in April: [].

I will be delcing into the new report after its release, and hope to offer further analysis at that time. If anyone sees a YouTube link to tomorros Congressional testimony among their travels, please also post it here.

Of note, I find it incredible that the special investigator has already initiated "35 ongoing criminal and civil investigations that include suspected accounting, securities and mortgage fraud; insider trading; and tax investigations related to the abuse of TARP programs". In the 3 months since the last report, that number has nearly doubled from 20 cases. [] Glad to see none of those billions are being wasted like dropped marshmallows on a campfire.

This CNN report from April provides some of the bottom line from Barofsky himself (see the video): []

I'll be keeping an eye on these very important developments, and urge you to as well. Thanks in advance for posting relevant links, especially to tomorrow's Congressional testimony.



For a bit of (not so) comic relief, somewhat brought to my attention today a page on the Obama administration's website, which highlights a $1.19 million award of stimulus money to a California meat packing company. The page has been changed since this morning, but this morning it indicated that the $1.19 million award was in consideration of 2 pounds of frozen sliced ham. At more than $590,000 per pound, that must have been one sweet honey ham! :) Likely a clerical error or misinterpretation, but ham purchases pretty much sum up what I think of the recovery act. []



13 Comments – Post Your Own

#1) On July 20, 2009 at 7:59 PM, XMFSinchiruna (26.56) wrote:

Washington Post article

"Many of the banks that got federal aid to support increased lending have instead used some of the money to make investments, repay debts or buy other banks, according to a new report from the special inspector general overseeing the government's financial rescue program."

"The report, which will be published Monday, surveyed 360 banks that got money through the end of January and found that 110 had invested at least some of it, that 52 had repaid debts and that 15 had used funds to buy other banks. "

"Although it might be tempting to do so, it is not possible to say that investment of TARP dollars resulted in particular loans, investments or other activities by the recipient," Herbert M. Allison Jr., the assistant Treasury secretary who administers the rescue program, wrote in a letter to Barofsky."[My Translation: "we know this is all so complicated that there's no possible way you were able to figure out where the money went. We designed it that way, silly inspector! Congress defied us to establish your office through the TARP legislation. Take THAT in return! Abracazam!"]

Our country is being led down a road to fiscal ruin, and it may already be too late to reverse course. That's the grim reality of our present situation. The answer has been to releverage the entire financial system despite the enormous sums of dysfunctional derivatives still hiding on balance sheets everywhere, unable to find a market. From the initial $700 billion to the $13.5 trillion mark, the total fiscal responses to this crisis carried tremendous momentum of scale. That momentum may yet carry some inertia! 

Barofsky's call for an eventual $23.7 trillion tally does not seem at all out of the question to me given my assertion that the reflation strategy is flawed in the first place.

"Faced with a growing list of insolvent banks, and a stress test process revealed as a joke, I could see Treasury seeking additional TARP-like funds from Congress, and perhaps advocating yet another stimulus package while finding ways to commit capital alongside the Fed in their well-entrenched strategy of countering the deleveraging process with an ever-increasing supply of fiscal intervention. Given the profound discomfort with the U.S. fiscal response already communicated by foreign holders of U.S. debt, like China, I see a failed fiscal response strategy leading this nation's currency down a road to ruin."


Fools, it's time to start voicing your thumbs down to your elected representatives about any reservations you may have about continued expansion of the overall fiscal response to reflate this deleveraging event. I believe the very future of our currency, and our collective well-being, is at stake here.

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#2) On July 20, 2009 at 8:25 PM, XMFSinchiruna (26.56) wrote:

P.S. Apathetic musings about the inevitability of government waste are not considered constructive additions to the conversation. We only get the future we make for ourselves!

Fool on, but don't be anyone's fool. :)

Also, consider this: the total scale of authorized fiscal response is already beyond 100% of the nation's GDP ... and likely to reach 2X GDP before too long. If one then adds projected spending for indirectly related response measures like the proposed Cap & Trade market (another form of mandated reflation of leverage) or health care "reform", expenditures plus fiscal response together will drawf present-day GDP and completely overwhelm global demand for U.S. denominated debt. Domestic sources of revenue, of course, will be contracting sharply meanwhile. Therin lies the currency crisis, already seemingly etched in stone. This is absolute fiscal madness!

Stand and be heard.

Sinchi is calling his representatives tomorrow. Will you?

Will you demand real transparency, real accountability, and a real return to fiscal responsibility?

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#3) On July 20, 2009 at 10:09 PM, ChrisGraley (28.45) wrote:

That's almost twice last year's GDP and will definately be twice this years GDP.

That's almost $79,000 for every man, woman and child in the country. My 1yr old neice has a debt of $79,000 with interest that she most likely won't start paying on for at least 15 years.

This can't possibly be sustainable.

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#4) On July 20, 2009 at 11:19 PM, russiangambit (28.66) wrote:

FED is out of control. What got them so scared? One of alstry scenarios must be true to justify what they are doing.

In the face of $23 trillion backstop (and I repeat my question - does so much money / assets exist in liquid form?) I really don't see how people in the media can talk with a straight face about recovery, green shoots, market technicals being bullish etc.

Market technicals are inflationary, not bullish, inflation is the only way to come up with this kind of money. However, if FED attempts it, US economy will be destroyed , for sure, and will plunge into depression/ deflation. Better take the medicine now and start living within our means, no more bailouts.

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#5) On July 21, 2009 at 6:35 AM, XMFSinchiruna (26.56) wrote:

Fed indicates easy money policy to continue for an extended period.

Even the Fed is not calling for a near-term recovery!

"Accommodative policies will likely be warranted for an extended period," Bernanke wrote in the article published on the Wall Street Journal's web site. "At some point, however, as economic recovery takes hold, we will need to tighten monetary policy to prevent the emergence of an inflation problem down the road."

"It doesn't look like he's sounding too anxious or urgent about removing excess stimulus from the system," said Sue Trinh, a senior currency strategist at RBC Capital Markets in Sydney.

While policy-makers have more fully turned their attention to how they might withdraw support for the economy, as opposed to how they might increase it, Bernanke made clear the central bank did not believe the economy was healthy enough for officials to remove easy money policies any time soon

"As my colleagues and I have stated, however, economic conditions are not likely to warrant tighter monetary policy for an extended period," Bernanke said.

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#6) On July 21, 2009 at 6:58 AM, XMFSinchiruna (26.56) wrote:


To answer your question ... we have not even close to that amount of liquid currency in the system. M1 is a basic measure of liquid currency, which seems to match what you were asking. M1 is currently estimated by John Williams ( at about $1.65 trillion. 

The broader M2, which includes savings and time deposits under $100,000, is about $8.4 trillion.

M3, the broadest measure, which includes money market funds, large time deposits, repo agreements, and other large "liquid" forms of money, is presently estimated by Williams at just under $15 trillion.

Of course, as you know, M3 data is no longer made available to the public, so this estimate is all we have to go on. Fortunately, John Williams is on the case and keeping close track for us. :P

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#7) On July 21, 2009 at 8:19 AM, XMFSinchiruna (26.56) wrote:

Where'd the bailout money go? Shhhh, it's a secret

Where'd the bailout money go? $350 billion later, banks won't say how they're spending it

* Matt Apuzzo, Associated Press Writer
* Monday December 22, 2008, 7:08 am EST

WASHINGTON (AP) -- It's something any bank would demand to know before handing out a loan: Where's the money going?

But after receiving billions in aid from U.S. taxpayers, the nation's largest banks say they can't track exactly how they're spending the money or they simply refuse to discuss it.

"We've lent some of it. We've not lent some of it. We've not given any accounting of, 'Here's how we're doing it,'" said Thomas Kelly, a spokesman for JPMorgan Chase, which received $25 billion in emergency bailout money. "We have not disclosed that to the public. We're declining to."

The Associated Press contacted 21 banks that received at least $1 billion in government money and asked four questions: How much has been spent? What was it spent on? How much is being held in savings, and what's the plan for the rest?

None of the banks provided specific answers.

"We're not providing dollar-in, dollar-out tracking," said Barry Koling, a spokesman for Atlanta, Ga.-based SunTrust Banks Inc., which got $3.5 billion in taxpayer dollars.

Some banks said they simply didn't know where the money was going.

"We manage our capital in its aggregate," said Regions Financial Corp. spokesman Tim Deighton, who said the Birmingham, Ala.-based company is not tracking how it is spending the $3.5 billion it received as part of the financial bailout.

The answers highlight the secrecy surrounding the Troubled Assets Relief Program, which earmarked $700 billion -- about the size of the Netherlands' economy -- to help rescue the financial industry. The Treasury Department has been using the money to buy stock in U.S. banks, hoping that the sudden inflow of cash will get banks to start lending money.

There has been no accounting of how banks spend that money. Lawmakers summoned bank executives to Capitol Hill last month and implored them to lend the money -- not to hoard it or spend it on corporate bonuses, junkets or to buy other banks. But there is no process in place to make sure that's happening and there are no consequences for banks who don't comply.

"It is entirely appropriate for the American people to know how their taxpayer dollars are being spent in private industry," said Elizabeth Warren, the top congressional watchdog overseeing the financial bailout.

But, at least for now, there's no way for taxpayers to find that out.

Pressured by the Bush administration to approve the money quickly, Congress attached nearly no strings on the $700 billion bailout in October. And the Treasury Department, which doles out the money, never asked banks how it would be spent.

"Those are legitimate questions that should have been asked on Day One," said Rep. Scott Garrett, R-N.J., a House Financial Services Committee member who opposed the bailout as it was rushed through Congress. "Where is the money going to go to? How is it going to be spent? When are we going to get a record on it?"

Nearly every bank AP questioned -- including Citibank and Bank of America, two of the largest recipients of bailout money -- responded with generic public relations statements explaining that the money was being used to strengthen balance sheets and continue making loans to ease the credit crisis.

A few banks described company-specific programs, such as JPMorgan Chase's plan to lend $5 billion to nonprofit and health care companies next year. Richard Becker, senior vice president of Wisconsin-based Marshall & Ilsley Corp., said the $1.75 billion in bailout money allowed the bank to temporarily stop foreclosing on homes.

But no bank provided even the most basic accounting for the federal money.

"We're choosing not to disclose that," said Kevin Heine, spokesman for Bank of New York Mellon, which received about $3 billion.

Others said the money couldn't be tracked. Bob Denham, a spokesman for North Carolina-based BB&T Corp., said the bailout money "doesn't have its own bucket." But he said taxpayer money wasn't used in the bank's recent purchase of a Florida insurance company. Asked how he could be sure, since the money wasn't being tracked, Denham said the bank would have made that deal regardless.

Others, such as Morgan Stanley spokeswoman Carissa Ramirez, offered to discuss the matter with reporters on condition of anonymity. When AP refused, Ramirez sent an e-mail saying: "We are going to decline to comment on your story."

Most banks wouldn't say why they were keeping the details secret.

"We're not sharing any other details. We're just not at this time," said Wendy Walker, a spokeswoman for Dallas-based Comerica Inc., which received $2.25 billion from the government.

Heine, the New York Mellon Corp. spokesman who said he wouldn't share spending specifics, added: "I just would prefer if you wouldn't say that we're not going to discuss those details."

The banks which came closest to answering the questions were those, such as U.S. Bancorp and Huntington Bancshares Inc., that only recently received the money and have yet to spend it. But neither provided anything more than a generic summary of how the money would be spent.

Lawmakers say they want to tighten restrictions on the remaining, yet-to-be-released $350 billion block of bailout money before more cash is handed out. Treasury Secretary Henry Paulson said the department is trying to step up its monitoring of bank spending.

"What we've been doing here is moving, I think, with lightning speed to put necessary programs in place, to develop them, implement them, and then we need to monitor them while we're doing this," Paulson said at a recent forum in New York. "So we're building this organization as we're going."

Warren, the congressional watchdog appointed by Democrats, said her oversight panel will try to force the banks to say where they've spent the money.

"It would take a lot of nerve not to give answers," she said.

But Warren said she's surprised she even has to ask.

"If the appropriate restrictions were put on the money to begin with, if the appropriate transparency was in place, then we wouldn't be in a position where you're trying to call every recipient and get the basic information that should already be in public documents," she said.

Garrett, the New Jersey congressman, said the nation might never get a clear answer on where hundreds of billions of dollars went.

"A year or two ago, when we talked about spending $100 million for a bridge to nowhere, that was considered a scandal," he said.

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#8) On July 21, 2009 at 10:19 AM, XMFSinchiruna (26.56) wrote:

On CNBC moments ago ... Barney Frank can't find a villain in the Bank of America / Merrill Lynch scandal. Perhaps he could look in the mirror and consider his own complicity with the entire fiasco of collective fiscal crisis response.

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#9) On July 21, 2009 at 10:24 AM, XMFSinchiruna (26.56) wrote:

Not surprisingly, the commentators are now talking over Ron Paul's remarks. How convenient.

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#10) On July 21, 2009 at 10:29 AM, outoffocus (22.83) wrote:

Green shoots!!

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#11) On July 21, 2009 at 1:16 PM, cmfhousel (90.50) wrote:

I think this is an important point to note about the $23.7 trillion figure:


"[The $23.7 trillion figure] 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. 

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#12) On July 21, 2009 at 1:21 PM, jesusfreakinco (28.14) wrote:


I'd be interested in your thoughts on this blog:

What is your take on the rumors of a bank holiday in the next couple of months?


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#13) On July 28, 2009 at 8:52 AM, XMFSinchiruna (26.56) wrote:


That is incorrect. The $23.7 trillion figure makes no such assumptions whatsoever unless one is peddling the figure as a measure of ultimate cost. As a measure of scale of response, which is as intended, it makes zero assumptions about asset values.


Entirely possible, I suppose, but I don't know how anyone can claim to predict the timing for such a scenario.

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