$29 Trillion

From the Levy Institute:

There have been a number of estimates of the total amount of funding provided by the Federal Reserve to bail out the financial system. For example, Bloomberg recently claimed that the cumulative commitment by the Fed (this includes asset purchases plus lending) was $7.77 trillion. As part of the Ford Foundation project “A Research and Policy Dialogue Project on Improving Governance of the Government Safety Net in Financial Crisis,” Nicola Matthews and James Felkerson have undertaken an examination of the data on the Fed’s bailout of the financial system — the most comprehensive investigation of the raw data to date. This working paper is the first in a series that will report the results of this investigation.

The extraordinary scope and magnitude of the recent financial crisis of 2007–09 required an extraordinary response by the Fed in the fulfillment of its lender-of-last-resort function. The purpose of this paper is to provide a descriptive account of the Fed’s response to the recent financial crisis. It begins with a brief summary of the methodology, then outlines the unconventional facilities and programs aimed at stabilizing the existing financial structure. The paper concludes with a summary of the scope and magnitude of the Fed’s crisis response. The bottom line: a Federal Reserve bailout commitment in excess of $29 trillion.

These bailouts saved a failed system. It allowed a broken system to stay broken, so it can break again another day. It saved broken companies, corporations and business models.

It did absolutely nothing whatever to address underlying systemic issues, like America’s oil addiction and systemic financial fragility.

Most disappointingly of all it sustained high systemic debt levels. Without liquidation of bad assets and bad debt capitalism stops working. An essential mechanism of capitalism is that new systems continually grow up to replace the old. That’s creative destruction. Without creative destruction, there is just stagnation.

In the eyes of the wider people, though, the greater trouble with these bailouts is their morality. If I leveraged all my assets, went to Vegas and lost it all playing blackjack, I wouldn’t get a bailout. That’s what the arbitrageurs of the international financial system did: they might have dressed up their addictions in the sophistry of mathematics, but the truth is it is all just gambling. Bailing out upper-echelon gamblers is just looting and pillaging the faith and credit of the world.

24 thoughts on “$29 Trillion

  1. Capitalism was always designed to empower the elite, sure some individuals did get a chance to rise and join the elite (e.g.Richard Branson), but they are rare.

    Human hubris always gets in the way. Competition is good, but not always and it too needs to be morally constrained. Undercutting can destroy the competition and create a monopoly. People can find substitute products to buy, but that too can be monopolized. The tendency of state capitalism is to create monopolies and cartels, gigantism is easier to control from a state elite point of view. Central Banking facilitates gigantism.

    • Capitalism has nothing whatever to do with “empowering the elite”. The rise of modern capitalism displaced and broke the old aristocracies after centuries of brutal, anti-democratic feudalism, and allowed for the rise of modern democracy. This was an extremely subversive period of history, and sadly not one that has continued, as Western societies ditched freedom and capitalism, and adopted corporatism, bringing with it a new aristocracy. State “capitalism” is not capitalism. It is corporatism.

      If we lived in a capitalist society there would have been no bailouts, and another aristocracy — the internationalist banking elite — would have been consigned to the dustbin of history.

      The greatest human hubris is the notion that the state can somehow centrally plan a better world through “constraining” reality, constraining competition, constraining nature.

      Further, it is important to note capitalism was never “designed”. Statism was designed (via Plato), Marxism was designed, technocracy was designed. Feudalism was designed (complete with pseudo-religious justification) to maintain and enhance the power of the Feudal lords. Capitalism was never centrally “designed” — it arose out of people wanting to build things, create things, produce things.

      • Aziz—well said—there is nothing capitaliistic about taking money from the pockets of taxpayers to “solve” a problem created by those who threw their institutions’ money away on the craps table—a complete bastardization of capitalism—yes, system collapse is a potential outcome that will bring harsh consequences for us all—but a sick, cancerous system requires the REAL capitalist inevitability of destruction of old and inapplicable vs. creation of new and productive—for some of these bastards (Corzine, etc. ), a little public execution might discourage future gambling…

  2. I see a lot of the form in which Anonymous characterizes capitalism, mostly from the political left in the US and from many of our young people, who seem to have profound understanding of few matters. There is no doubt that our ‘free market enterprise’ concept has been led far afield by big government and big corporations but, as Azizonomics replied, this has nothing to do with capitalism and everything to do with sustaining the existing moneyed power elite. For the first time in my lifetime I see some interest at the grassroots aimed at this corruption of our ideals and I hope it continues.

    • The left have their heart in the right place in believing that the system should work to give everyone an opportunity, but I think the most frustrating and wrong thing is the popular idea on the left that the answer is socialism or collectivism. The reality is that what we have today is actually another form of collectivism known as corporatism that puts systemic stability and the interests of the various aristocracies above individual liberty.

      • The problem with the Left, is it is hijacked by old “Lefties” who groom a naive younger Generation. In Australia, Melbourne city, I walked past a Socialist demonstration. They were calling on a Petition to support a Nurses strike. I said I don’t know enough about the issue to support the petition. I then asked if she had any thoughts on Karl Marx’s “Communist Manifesto” She never read it.

        The Right needs to educate the youth at the Grass roots level. However, Youth naturally supports “Radicalism” and a “Free Lunch”. They are Teenagers!

        Socialism needs to fail, before the Youth and tomorrows parents can warn the next generation of “Lefties” of the perils of Socialism.

        When I read Ludwig Von Mises “Liberalism” I have certain sympathies for Capitalism. It brought the Industrial Revolution. London 1850, is like Shanghai 2010. Full of Agricultural refugees, busy building consumer goods. London is in now in decay, because of Socialist policies. It is an example of a Tertiary/Service economy.

        Karl Marx’s Communist Manifesto assumes humans are idealistic and altruistic, striving for a Utopia. It does not account for primal human nature. Greed corrupted it. The USSR and China is an example.

        Government workers and Politicians are self interested. Therefore we will see a Socialist/Capitalist mix for eternity. The gap between the rich and poor will grow, just beyond the point of Revolution. Laws will be created that stifle physical rebellion and dissent. The internet is a steam valve for the angry “Intelligentsia”. Reality TV, Welfare, Drugs and Alcohol are the same steam valve for the “Masses”.

        Welcome to 2012. Have a Safe and happy Christmas to all readers.

  3. Yes look where you are now.

    I have trolled the net for sites, and I must say in the whole English published internet space, this site is the best. Well done. I too thought Leftist theory was rigtht (My Economics teacher was a public school socialist), but now I know it is called Left for a reason!

    P.S. I think ZH is under surveillance. Membership takes too long to activate. Too many revolutionaries there! Don’t computer users realise we are all tracked if required? That is what scares me. The USA has too many guns, and it will make Somalia look like a picnic if the US system collapses.

  4. After lurking in all other sites such as ZH (Seeking Alpha, Market Watch, Business Insider, Azizonomics etc) I conclude that a lot of disaffected (The lost their savings gambling the markets) people are venting their spleen on these sites, but still have no idea.

    Because the market is now centrally planned by the BIS and its Henchmen, the Central Banks, it is impossible to use history as a guide, and charts for that matter. The top houses and traders have read all the books, most new traders have, and as a result they (and their algos) know how to shake out Retail, and even wholesale traders.

    Most of the bears are probably paid shills to strike fear in peoples hearts, forcing them to liquidate their underwater holdings.

    People forget that money equals a commodity to exchange it for. With all this liquidity and money printing, the dollars will be winding up in the hands of people who are snapping up hard commodities, before the owners realise that the money is devalued.

    For this reason I have gone to Cash (To buy items at deflated desperate prices) and prime farmland (to earn income from people who have to eat). In Australia you can only own guns if you have a farm or member of a sporting shooter association. I bet eventually the sporting shooters will lose their right, but farmers will have a genuine reason (Stock shootings, vermin shootings and pest control) IF the SHTFH (Hard-causing a fine gut wrenching spray) at least I know I will be able to defend my interests. (My great Grandfather and Great Grandmother on both sides were burned alive in their home in Ukraine WW2 and I am learning from history)

    BTW I have contacts in Australian Real Estate, in prime areas of Melbourne, and the market has dropped 40% in price offers but vendors are not selling. Once they are forced to sell (unemployment or panic), they will be underwater big time. In Australia, we have full recourse loans, so consumer spending is going to take a dive. Short Australian Banks and Retail. Australian Banks have heavily relied on offshore financing of Mortgages, and their funding costs are huge. I used to work in the Big 4 banks and their IT systems are inadequate for them to report quickly and efficiently.

  5. If I was in charge, I would have given them the TARP and then initiated a controlled restructuring of the banking system. This so as to avoid the shock of a global financial collapse (I think Hank Paulson was right when he said that – they were not right about not doing anything after that to restructure the system).

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  12. A new approach is needed. U.S. citizens deserve the same ‘credit extensions’ that has been given to the major money center banks (domestic and foreign).
    The Leviticus 25 Plan provides the mechanism for that comprehensive economic accelaration plan.

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