On the Wundervoll World of Bailouts

I was listening to NPR earlier this week, and the station was airing the third and final part of a "Planet Money" segment that chronicled the ever-evolving role of Fannie Mae and Freddie Mac in the U.S. real estate industry.

All three segments are worth a serious listen – the origin of Fannie and Freddie's quasi-public status, which the first segment deals with, is particularly fascinating* — but what I found interesting about the stories, though, was the utter seriousness in which NPR and its sources treated the quantitative nature of the Fannie/Freddie bailout.

Now, don't get me wrong, a billion dollars (that's a thousand million) is a gargantuan sum of money, and the taxpayer cost of the Fannie/Freddie bailout currently stands at a whopping $130 billion (and don't worry, kiddies, the sum will only rise higher); however, in the wundervoll world of bailouts, $130 billion is not so much minuscule as it is chump change.

Courtesy of a recent audit of the Federal Reserve's balance sheets (we can thank Bernie Sanders, one of the seven honest men working on Congress, for that), we now know what had been suspected for quite some time: that the U.S. Treasury and Federal Reserve dropped TRILLIONS of taxpayer funds from helicopters in a desperate attempt to shore up the world financial markets after Lehman Brothers filed for bankruptcy.

For instance, according to the data that Sanders uncovered, Goldman Sachs received just under $600 billion in bailout funds; Morgan Stanley? nearly $2 trillion; Bear Stearns? the first mega-bank to collapse? nearly $1 trillion; Citigroup? the ultimate zombie bank that is still on the verge of collapse? $1.8 trillion; and Merrill Lynch? which failed and was absorbed by Bank of America? $1.5 trillion. In case you weren't counting, that's just shy of $6 trillion. And while we're on the topic of bailouts, we should be equal-opportunity corporatists — GE, McDonald's, Caterpillar, Harley Davidson, Toyota, and Verizon also received bailout funds.

A billion's not cool. You know what's cool? A trillion.

The true costs of the bailouts are anybody's guess, but there are brave individuals who have made substantiated estimates at where the totals lie. Neil Barofsky — who was, until his resignation, the Inspector General of TARP — estimated that the bailouts could total as much as $23.7 trillion, while Nomi Prin, one of the most savvy financial journalists working today, has exhaustively chronicled all known guarantees by the government. She places the bailout sum at a more manageable $14.6 trillion.

What Fannie Mae and Freddie Mac did was reprehensible. They took advantage of their public/private stature, a privilege unmatched in the financial sector, and made substantial risks on the taxpayer's expense. But it's beyond naive to act as if the $130 billion needed to support Fannie and Freddie represents some kind of grotesquery, especially in light of the stratospheric sums our government has already provided to a myriad of companies.