Begin forwarded message:
From: "Dave Wilson" <dave () wilson net>
Date: September 20, 2008 10:38:38 AM EDT
To: dave () farber net
Subject: Re: [IP] How big a bailout?
Speaking very solely for myself on this....
You can get a pretty straightforward analysis of expenditures and
total costs of the savings and loan bailout from eighties (through
1999) from the Federal Deposit Insurance Corporation here
http://tinyurl.com/6zlskk (note that these figures include spending
both the Federal Savings and Loan Insurance Corporation, which
ultimately became insolvent at the end of 1986, and the establishment
of the Resolution Trust Corporation in 1989).
To summarize: From 1986-95, over 1,000 thrifts failed, forcing the
government to take control of about half a trillion in assets, which
were then repackaged and resold. As of 1999, losses to U.S. taxpayers
totaled $124 billion (the thrift industry paid for another $30
billion, for a total of about $153 billion in total losses for the
cleanup). Over the course of the crisis, the number of thrifts
declined by about 50 percent, to 1645. The authors of the study do
include financing costs (essentially interest on the money
appropriated for RTC expenditures; I think that's not unreasonable,
assets taken by the RTC increased in value over time so I expect it's
probably close to a wash).
It's worth noting that the initial estimate of the savings and loan
bailout were woefully low, something on the order of 400 thrifts with
about $200 billion in assets. Those number were waaaay off: 800
thrifts and $400 billion. In the first year.
I mention this because part of the reason we have reached this crisis
point is due to what you can think of as an optimistic bias among
traditional economic analysis. The old joke that economists have
correctly predicted 15 of the last 7 recessions is actually
backwards (yes, I understand it's not funny the other way, thanks).
point is that economic analysis almost never nails an upcoming
downturn (there's some mechanics to this, obviously; if we all know a
recession is coming in six months, we'll stop spending now, and thus
the recession will come immediately and not six months from now). But
economic analysis is frequently based on the past, more specifically
the immediate past. Sometimes that makes sense -- the sun will indeed
rise in the East tomorrow -- but it also means you're going to miss
the inflection points. Sometimes in a very big way...
Thus, we have spent much of the 21st century listening and watching
very smart guys declare that a decoupling of housing prices from
family incomes isn't anything to worry about, that the housing crisis
is limited to the sub-prime market, then that it has been "contained"
to the mortgage industry in general, then that a general decline in
home equity will not affect the economy, and then they wake up and
start throwing enormous amounts of money at lenders to rescue them
when institutions simply refused to lend to each other, and then they
say that a single investment bank implosion does not place other
institutions at risk, and finally here we are, acknowledging that all
these systems are in fact linked together -- that risk never goes
away, no matter how the risk is spread out -- and we've got to do
something immediately or spend a decade trying to recover from
something that might actually be unprecedented.
On Sat, Sep 20, 2008 at 5:26 AM, David Farber <dave () farber net>
Begin forwarded message:
From: "David Lesher" <wb8foz () panix com>
Date: September 19, 2008 11:13:11 PM EDT
To: dave () farber net (David Farber)
Subject: How big a bailout?
I'm wondering how deep in the hole we are all going
on these bailouts.
Can we compare it to the Resolution Trust Corp?
How much money was plowed into it;
how much was recovered?
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