Explaining Southern California's economy

You call that a mortgage settlement?

Mortgage settlement

Reuters/Gary Cameron

U.S. Attorney General Eric Holder and U.S. Housing and Urban Development Secretary Shaun Donovan announce that the government and 49 state attorneys general have reached a $25 billion settlement agreement with the five largest mortgage lenders to redress foreclosure abuses, in Washington, February 9, 2012.

UPDATE: California Attorney General Kamala Harris wasted no time in leaping ahead to a provision of the deal that could up the settlement to $45 billion, with California homeowners getting $18 billion. The U.S. Department of Justice says $7 billion, and adds that "[s]ervicers that miss settlement targets and deadlines will be required to pay substantial additional cash amounts." Maybe she doesn't like the size of the stated number all that much, either?

We have a mortgage settlement at last between the big banks and the states. California and New York, the two staunchest holdouts, have signed on. But then there's the actual number: $25 billion (initially reported as $26 billion). It just isn't that much. And although the news of the settlement has been greeting positively, for the most part, it's far from clear that it will ultimately turn the housing market around.

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Bank bailout math: It was actually $29 trillion

Mercer 11751

AP Photo / J. Scott Applewhite

The Federal Reserve Building in Washington, DC.

How big was the too-big-to-fail bailout of U.S. banks? If you said, "$700 billion," then you'd be limiting yourself to the Troubled Assets Relief Program (TARP) that was authorized in late 2008, in response to the financial crisis.

But if you're a student of economist L. Randall Wray at the University of Missouri-Kansas City, backed by a Ford Foundation grant to find out just how much the bailouts cost, you'd have a slightly different answer: $29 trillion. Almost $30 trillion, actually, if it's your policy to round up from $600 billion.

Here's Wray, at the Huffington Post:

[A]nalyses of the bail-out variously put the total at $7.77 trillion (Bloomberg) to $16 trillion (GAO) or even $24 trillion. He argues that these reports make "egregious errors," in particular because they sum lending over-time. He also claims that these high figures likely include Fed facilities that were never utilized. Finally, he asserts that the Fed's bail-out bears no relation to government spending, such as that undertaken by Treasury.

All of these assertions are at best misleading. If he really believes the last claim, then he apparently does not understand the true risks to which he exposed the Treasury as the Fed made the commitments.

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