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Monday, April 12, 2010

Taxpayer Cost of Financial Bailout

The government's bailout of the US financial system is expected to cost US taxpayers far less than originally expected. Unfortunately, the Obama administration estimate of $89 billion doesn't include the costs to taxpayers from the biggest "mistakes" that could bring the total over $450 billion!

Yesterday the Wall Street Journal cited Treasury Department officials with estimating the total cost of the bailout at $89 billion which is much lower than earlier projections of $250 billion or more.
Just a year ago, the Congressional Budget Office and Office of Management and Budget estimated that the overall bailout would cost more than $250 billion. Last month, though, Treasury Secretary Timothy Geithner said the rescues will amount to "less than 1%" of gross domestic product. The $89 billion projection is less than the cost of the savings-and-loan crisis in the 1980s and early 1990s, which totaled as much as 3.2% of GDP.
The $89B cost of the bailout includes the Troubled Asset Relief Program (TARP,) capital injections into Fannie Mae and Freddie Mac, loan guarantees by the Federal Housing Administration and Federal Reserve moves such as buying mortgage-backed securities and propping up the commercial-paper market. Taxpayers made money on many of the investments in banks such as Citigroup.
Still, of the $245 billion that Treasury invested in U.S. banks, $169 billion has been returned so far, and officials estimate an eventual profit of $8 billion.

As of February, the U.S. government has collected $13.7 billion in dividends, interest and other income, along with $4 billion in warrant proceeds.
The politicians like to blast the bankers on TV to take the heat off the biggest drain on taxpayers, the GSEs (Government Sponsored Entities) known as Fannie Mae (FNM) and Freddie Mac (FRE.) which are responsible for the majority of the taxpayer losses.

The $89B estimate does not include losses at Fannie Mae and Freddie Mac, which are projected to be $370 billion through 2020!!!
According to the CBO, losses related to the investment portfolios of Fannie Mae and Freddie Mac are projected to total $370 billion through 2020, though the figure will fluctuate depending on the health of the housing market. The Treasury's $89 billion estimate for the total bailout cost doesn't incorporate CBO's projected losses at Fannie and Freddie because, for budgeting purposes, the Obama administration technically considers them private entities. Taxpayers are potentially on the hook for losses at Fannie and Freddie.
Adding in the $370 billion projected cost of the bailout at Fannie Mae and Freddie Mac to the current CBO estimate of $89 billion for everything else gives a total cost to taxpayers of the financial bailout of $459 billion!

Since 12/31/98 "Kirk's Newsletter Explore Portfolio" is UP 159% (a double plus another 59%!!) vs. the S&P500 UP a tiny 8.6% vs. NASDAQ UP a tiny 3.5% (All through 12/31/09)

In 2009, "Kirk's Newsletter Explore Portfolio" gained 33.5% vs. the DJIA up 18.8%
As of 4/11/10, the explore portfolio is up 7% YTD
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