Sunday, December 11, 2011

Drumroll, please: And the new Fed bailout total is....

... $29.6 trillion and counting. Lovely. Viva el capitalismo!

Please remember this $ figure the next time you or one of our crotchety conservative friends feels the urge to complain about the Solyndra loan guarantee ($500 million), Detroit-automotive bailouts ($65 billion), or extended unemployment benefits ($60 billion). If you have any sense of consistency, fairness, humanity or just basic arithmetic, then please stop your bitching and join up with others who acknowledge the sad truth that Wall Street runs our government and our central bank for its own benefit.

By Barry Ritholtz
December 9, 2011 |

There is a fascinating new study coming out of the Levy Economics Institute of Bard College. Its titled "$29,000,000,000,000: A Detailed Look at the Fed's Bail-out by Funding Facility and Recipient" by James Felkerson. The study looks at the lending, guarantees, facilities and spending of the Federal Reserve.

The researchers took all of the individual transactions across all facilities created to deal with the crisis, to figure out how much the Fed committed as a response to the crisis. This includes direct lending, asset purchases and all other assistance. (It does not include indirect costs such as rising price of goods due to inflation, weak dollar, etc.)

The net total? As of November 10, 2011, it was $29,616.4 billion dollars — (or 29 and a half trillion, if you prefer that nomenclature). Three facilities—CBLS, PDCF, and TAF— are responsible for the lion's share — 71.1% of all Federal Reserve assistance ($22,826.8 billion).

One comment about some of the folks pushing back against this massive total: Yes, there is a big difference between a $100 lent for 3 days, and a $100 lent overnight rolled over 2 more times. And there is an enormous difference when temporary overnight lending lasts for three years.

Overnight lending, by its definition, is temporary, short term, lower risk, modest impact. It exists to allow slightly over-extended banks to meet their reserve requirements. But rolling overnight lending repeatedly for 3 years is none of those things. And it makes a mockery of these same reserve requirements, and the protective purposes they are supposed to serve.

The amount of overnight lending reflects how broken our financial system really is. A well capitalized, moderately leverage system does not require this massive liquidity from a central bank — interbank lending should be sufficient. What the data reveals is that the financial sector remains dangerously under-capitalized and overleveraged.

[Oh, p-shaw. Leverage is great! Leverage is the best! How else can you make loads of cash without work or increased productivity? This Ritholtz guy obviously doesn't understand high finance.... - J]

To pretend these were merely minor overnight loans, rolled over once or twice, is foolish, dangerous nonsense.

Cumulative facility totals, in billions

Source: Federal Reserve

FacilityTotalPercent of total
Term Auction Facility$3,818.4112.89%
Central Bank Liquidity Swaps10,057.4(1.96) 33.96
Single Tranche Open Market Operation8552.89
Terms Securities Lending Facility and Term Options Program2,005.76.77
Bear Stearns Bridge Loan 12.90.04
Maiden Lane I28.82(12.98)0.10
Primary Dealer Credit Facility8,950.9930.22
Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility 217.450.73
Commercial Paper Funding Facility737.072.49
Term Asset-Backed Securities Loan Facility71.09(.794)0.24
Agency Mortgage-Backed Security Purchase Program 1,850.14(849.26)6.25
AIG Revolving Credit Facility140.316 0.47
AIG Securities Borrowing Facility802.3162.71
Maiden Lane II 19.5(9.33)0.07
Maiden Lane III24.3(18.15)0.08
AIA/ ALICO250.08
Totals$29,616.4 100.0%

By L. Randall Wray
December 9, 2011 | Economonitor


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