Re: How big a bailout?

[David Farber <dave () farber net>]

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 by 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 not  
include financing costs (essentially interest on the money  
appropriated for RTC expenditures; I think that's not unreasonable, as  
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 completely  
backwards (yes, I understand it's not funny the other way, thanks). My  
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 as  
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.

-dave

On Sat, Sep 20, 2008 at 5:26 AM, David Farber <dave () farber net> wrote:


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?

Prof F:

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?





-------------------------------------------
Archives: https://www.listbox.com/member/archive/247/=now
RSS Feed: https://www.listbox.com/member/archive/rss/247/
Powered by Listbox: http://www.listbox.com






-------------------------------------------
Archives: https://www.listbox.com/member/archive/247/=now
RSS Feed: https://www.listbox.com/member/archive/rss/247/
Powered by Listbox: http://www.listbox.com