The Breakdown | Explaining Southern California's economy

Bank bailout math: It was actually $29 trillion

The Federal Reserve Building in Washington, DC.
The Federal Reserve Building in Washington, DC.
AP Photo / J. Scott Applewhite

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.

You can read all about the magnitude of that risk in a Levy Economics Institute working paper written by Nicola Matthews and James Felkerson, two Missouri-Kansas PhD candiates.

Then you can try to wrap your head around the idea of $29 trillion — oh heck, call it $30 trillion! Which is almost double the entire yearly U.S. GDP of $14.5 trillion. That's right: the entire U.S. economy would have to work for free for two years to bail out the finance sector at this level.

It might be hard to wrap your head around that.

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