As Peter Cohan noted earlier this week, the size of the corporate bailout in the U.S. is far larger than most reports would lead you to believe. While $700 billion is thrown around as shorthand for the bailout, the real figure is in the trillions. Peter cited a figure of $7.4 trillion, and today's New York Times goes even further with a total bailout cost estimated at $7.8 trillion.
The Times published a graphic today that helps explain the figure. It's well worth looking at for a few minutes. It takes a while for numbers this big -- and a problem so complex -- to sink in.
It's important to make a distinction between money spent and dollars committed to the bailout. So far, about $1.4 trillion has been spent -- already twice the level usually cited. But the dollars committed to the bailout are far larger, nearing $8 trillion, or five times the amount already spent and over 11 times the $700 billion figure.
To understand the bailout, you have to look at the various roles the federal government is playing. It is acting as an insurer, an investor and a lender, and in each of these roles it is making multi-trillion dollar commitments. Here's a quick summary:
- As an insurer, the federal government has committed $43.1 trillion to protect depositors against default; only $97 billion of that has been spent.
- As an investor, the government has committed $3 trillion to take stakes in companies; $649 billion has been spent.
- As a lender, the government has committed to making $1.7 trillion in mostly low-interest loans to major financial institutions; $617 billion has been spent.
I suspect that most people (myself included) have trouble envisioning this level of financial commitment. Once you hit the trillions, the numbers start to become a bit unreal. But one thing is clear: the federal government is pumping money into the economy at levels that have no precedent -- and the effects of which are unknown and, at this point, impossible to predict.
Economic recovery is one possible outcome, but only one among many. Let's hope the alternative outcomes remain theoretical. Unfortunately, the money committed and being spent is real, and we'll all have to keep our attention focused on where it's going, who is profiting from it, and why.
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