Where does bailout money come from?
The government's been throwing cash around willy-nilly to bail out Bear Stearns, AIG and Fannie and Freddie. Where's all that money coming from? And how often can Bernanke and Paulson keep going back to that well? John Dimsdale reports.
Rows of dollar bill notes at the Bureau of Engraving and Printing in Washington, D.C. (Alex Wong/Getty Images)
More on The Economy, Wall Street, America's Financial Crisis
Links
TEXT OF STORY
KAI RYSSDAL: The government's been throwing cash around willy nilly to do all these bailouts. Bear Stearns, AIG, Fannie and Freddie. And that doesn't even count the hundreds of billions in short-term cash loans to keep things flowing in the banking system.
Pretty soon you're talking real money. But where's it all coming from? And how often can Bernanke and Paulson keep going back to that well?
Marketplace's John Dimsdale reports from Washington.
JOHN DIMSDALE: To help pay for these bailouts, the government sells securities. And right now, there's plenty of demand because those securities are considered safe in the midst of all the turmoil.
For example, today the Treasury Department auctioned $45 billion in short-term IOUs. They'll be bought back in only 35 days.
Ward McCarthy, the managing director of Stone and McCarthy Research Associates, says investors snapped them up at some very attractive interest rates for the government.
WARD McCARTHY: There were some people who actually bid zero, just to know that they would get their money back in 35 days. They were willing to lend the money to the Treasury for free, knowing that they wouldn't lose it in the stock market or that they wouldn't have it be held by another financial institution that could undergo some difficulties.
Is there a limit to the government's largesse? Not as long as people are confident the government will pay its bills, says Wharton Business school professor Jeremy Siegel.
JEREMY SIEGEL: The government cannot run out of money. Go into your wallet and take a look at what you've got in it. It's called Federal Reserve Notes. Those are under control of the Federal Reserve. Do you notice that they don't say they are backed by gold. They are not backed by silver. They don't have to have anything behind them except the full faith and confidence of the government.
And in the AIG case, the government might actually earn money. It's demanding an 11 percent interest rate on its two-year loan, and holds nearly 80 percent of the insurance company as collateral.
In Washington I'm John Dimsdale for Marketplace.
Comments
Comment | Refresh
From albuquerque, NM, 11/04/2009
and tell me sir,
what are these resources that you speak of?
what else can run our economy? i am sincerely curious to what they are. cause i dont believe u are correct
From Santa Monica, CA, 07/24/2009
Money is not what we need, but resources. A global resource-based economy WITHOUT MONEY is difficult to imagine, but possible. Think about it; money only brings us problems. We all think money, money, money! But, there's plenty of resources out there for whatever we need, as long as they are managed and developed well. A resource-based economy is not a new kind of communism. It is a system where everyone gets what they need in abundance. Read more on http://www.theresourcebasedeconomy.com/
From nesconset, NY, 06/25/2009
There is no doubt in my mind that the worst is yet to come... it seems to me that many investors purchased these CDO's
which were pretty much not worth the paper they were printed on... all this money the gov. is printing will be additive once the economy recovers which will take time but the trick is that the stockmarket a foward looking price mechanism...basically because greed doesn't wait it prices future growth through recovery ahead of the actual recovery the rub is... all this money being pumped into the economy will have to be pulled back out somehow before inflation increases quite quickly... the vehicle is to increase interest rates but... then the stock market again looks foward declines in anticipation of lower economic activity through the erosion in consumer purchase power the trick will be when will this occur? my guess is within 3 to 4 years
From FL, 06/25/2009
If the government is borrowing the money from the people in order to pay for these massive bailouts, how is the government going to pay those people back?
$45 billion in short term IOU's are...well...IOU's, you have to pay the people you borrow the money from BACK in 35 days. How is giving bail-out money to people going to make the goverment money?
There is nothing at all in this article about where the bailout money comes from...it's just saying they're borrowing to bail someone out, it DOESN'T MAKE SENSE.
From Penisvagynia, PA, 05/13/2009
I agree with Michael Sullivan and want to take it some steps further even: if the US were Smart they'd unite with Europe: 1 currency, 1 ID, 1 Federal Law, no VAT in between members, 50+27 States and we would call it Eurica.
Optionally the UK could join in, then we would call it the United Eurica.
Ofcourse some Asians might become interested, so then we could call it United Euricazia.
When the Russians join in we'd have to call it United Euricasszia.
And by the time we finally get the Middle-East to join, it would probably be called United North-East-South-Western-in-the-Middle of Euricasszia.
From Hamsterdam, AL, 05/13/2009
It looks like the Asians are majorly pwning the Americans who we're in the process of getting pwned by the Middle-East which was caused by Bush being pwned by an Arab.
From Paris, IL, 04/23/2009
GIVE THE PEOPLE MONEY! NOT THE BIG COMPANIES IN THE WHOLE!!!!!!
From pflugerville, TX, 04/03/2009
if the united states leaders were smart, it would get rid of the American dollar, by any means necessary, and switch to the euro, by far the most stable form of money on the planet, but than again, that's if the united states leaders were smart.
03/19/2009
They borrow the money from the World Bank and it is supplied by contries whose financial systems back the dollar, such as China. Which means in about 30 years we will be owned by China. We won't be worrying about how our children will be paying back the money. We will be worrying about being tortured for our beliefs, etc.
From hammond, IN, 02/20/2009
I agree to give taxpayers $100,000 to stop this recession from going to a depression. It would trickle-up exactly. I think the fellas in washington are too scared to do that.
From Bentonville, AR, 02/17/2009
Everyone's looking to the root causes, and for people to blame in times of recession. You want someone to blame? How about Woodrow Wilson? Who gave over the rights of the government to print and control money(therefore inflation) to a private banking cartel in 1913! Yes we pay a private institution(at interest)to create the money we use. Many documentaries out there explain how flawed and corrupt our monetary system really is like "Zeitgeiest" 1 and 2, however for an educational dose of whats really wrong try "money as debt"(less than an hour). It is put in simpler terms that are easier to understand, and without all the overdramatic conspiracy theory BS. When one really understands that the Monetary system in place is mathematically unsustainable no matter what we do, we can look for REAL solutions.
From New Orleans, LA, 02/12/2009
Talk about full circle. The US borrows the money from the Fed to bailout banks that are owned by the same families that own the Fed. No wonder they get away with it. Everyone is sound asleep.
02/11/2009
simple answer to where the money is coming from: "printing press"
From canton, OH, 01/20/2009
Basic economics teaches that private capital is the healthiest form of expansion. There is more motivation to perform because your own money is at stake. For the government to participate in any form in rescuing the banks, auto industries, state and local governments is asking for trouble because the risk factor is removed as well as the incentive to perform. Look at public assistance if you need a concrete example. As far as all the banks and financial institutions; they have the ability to raise private capital either through a merger or a bankruptcy to revalue their assets. They became poorly operated by greedy management who set aside prudent lending and financial management guidelines. This is at the heart of the credit crunch despite from whatever source the worthless assets were derived. On the topic of CRA lending; banks were encouraged but not forced to participate in lending to these types of borrowers. Prudent guidelines were in place to measure credit risk for CRA loan applicants. Stop blaming these types of borrowers for the credit crises because CRA loans were never a significant volume of any given bank's loan types. My reason for writing is that responsibility on the part of bank management needs to come into glaring headlines. Many individuals were offered incentives to put aside the 5 c's of credit in order to get their bonus's, options, cash, and other incentives. The first c of credit is character; then follows; capacity, condition, creditworthiness, and capital. There is a need for regulation of human character not the banking and finance industry.
From stanton, CA, 12/21/2008
If the gov. really want's to help, why not give every house in america a $100,000 check so that we can pay bill, and mortgages. Not individuals, only households, think of the possibilities. bills will be paid, homes will be saved, people will begin to spend again. Give the money to tax payers, not corp. america. THEY HAD THERE CHANCE!!!, as hard working americans, we can solve the problem. Not the big corporations they'll just put a ban-aid on it for awhile. In the mean time more and peolpe will lose there jobs and homes.
From victoria, BC, 12/05/2008
If you want to be educated about how the federal reserve system works go watch the zeitgeist addendum on you tube. May God be with us all.
From AL, 10/28/2008
All I can say watch The Money Masters.
I don't think they have all the answers but there sure alot of answers. It seem like everything is comming in a circel. Where does the money for the bailout come from.
Just start and have the goverment pay of there loans with united state notes and lets get controll of everything. International Bankers trying to do it again
From San Luis Obispo, CA, 10/28/2008
James T Hughes III, I had no idea!!! I have done hours of research into the federal reserve and now see that you are correct...The Federal Reserve is owned by private individuals.
I hope everyone reads
SECRETS OF THE FEDERAL RESERVE, By Eustace Mullins. (please find a TRUE copy)
From Lorton, VA, 10/21/2008
The privately owned, very much for profit, banking cartel horribly misnamed the Federal Reserve System has brought us to the brink of a new depression (in which they will collect all the assets held as collateral against the loans of money it only had to pretend it had). For the record, every cent you pay in income tax goes directly to: The Rothschilds of London and Berlin; Lazard Brothers of Paris; Israel Moses Seif of Italy; Kuhn, Loeb and Warburg of Germany; and the Lehman Brothers, Goldman, Sachs and the Rockefeller families of New York. It is so unjust I could cry. I'm not religious, but I hope there is some kind of judgement in some kind of afterlife, otherwise these monsters will get away clean.
From Bangalore, 10/14/2008
Nice artical.
From Austin, TX, 10/11/2008
This is an extraordinarily simplistic view of how this is all going to go down and I question the objectivity of this article. Of course when the treasury sells bonds, it has to pay for the interest on those bonds (or in the case of zero-coupon bonds, it sells them for less then the actual value of the bond).
So where will that money come from? From the Federal Reserve printing more money and devaluing the dollar and therefore all American's savings?
Also, it seems strange that the FDIC is helping to orchestrate the sale of failing banks (WaMu sold to JPMorganChase; Wachovia sold to Citigroup, although it looks like Wells Fargo intervened here) to the new banking goliaths given the fact that these are now good investments with the bailout money ensuring that the bad assets will be purchased by the Treasury (taxpayer). Is the FDIC concerned about the fact that it actually doesn't have the money to ensure the deposits in those banks so it is imperative that these banks are acquired at the expense of the taxpayer? It seems to me that this is just a treacherous theft from the taxpayer to maintain the illusion that our money is FDIC insured.
From Wichita, KS, 10/10/2008
We'll pay for the bailout in the form of inflation.
From AL, 10/08/2008
call me stupid but i dont understand from whom the goverment gonna borrow those money.I think it is very important to know to whom you own and what is the real price. greetings from Bulgaria
From redondo, CA, 10/08/2008
Recall greenspan was opposed to funding iraq with tax cuts for the rich and was pressured for lower rates (cheap money). Like so many others in the administration it was "fall in line or resign". Recession and the war were not to be resolved with long benefiting government projects (like johnson's TVA), but rather with PERSONAL debt as bush's recovery attempted to exploit "gdp is 2/3 personal spending" and called for people to go out shopping. Everyone knows that cascade effect after a new home purchase. "deficits don't matter" was repudiated. The government went into debt for their wars, the public was supposed to finance the economic recovery on the backs of the ignorant, poor, greedy and gullible. Those personal mortgage debts didn't work out. Instead, the government/citizenry will retroactively take on the debt and no beneficial long lasting national project has occurred. It's probably back to square one and inflate the way out of the problem (agree with michael smith above).
here's something to ponder: when TVA was first proposed, how many at the time said "population centers are too far from the dam/power plant". contrast that with today's pickens plea to just have govt assist on the transmission infrastructure hurdles. That is the role of the government to exert influence over inter-state issues that benefit all.
From CT, 10/08/2008
To put it bluntly, the Government is printing the money for bailout, which in turn will depreciate the value of dollar, which eventually result in high inflation for the American economy.
From Edison, NJ, 10/07/2008
While we're basking in the mindset that the government can print as much money as it needs, let's not forget the reality; Uncle Sam will get $700 billion by BORROWING IT. That means paying interest, even if it's a market-depressed piddling percentage. Who pays the interest? You guessed it, taxpayers.
The bailout may be the best solution under the circumstances, but let's not gloss over the fact that a price will be paid, and the taxpayer, as usual, will be paying it.
H
From Garden Valley, CA, 10/06/2008
Who do you think has all the money in their pockets that now force such a government bailout/buyin? Who is following the money? Find the real answer to this depression. Blaming the financial institutions for making the bad loans is only a drop in the bucket, wrong as they were. This started long before the present administration. Loss of civilized behavior harking back to human beginnings with only the survival of the fittest, and the devil with the weak! Humanity is regressing and civilized behavior has weakened drastically!
From chicago, IL, 10/06/2008
The government should be responsbile for bailout money for there state. All money should be your to help people in needed.
From conroe, TX, 10/06/2008
I've read some international e-mails that have said we are borrowing money from Japan. Is there anything to this?
Thanks!
JMB
From Austin, TX, 10/01/2008
If the problem is that banks aren’t lending to other banks because they can’t trust them, why don’t we spend the money to make things more transparent? Why, instead, are we making it even easier for banks to obscure the value of their own debt?
From Sandwich, IL, 09/29/2008
Exactly where is the government coming up with that amount of money for the bailout? Are they cutting something out, or making more or what?
From XXXXtown, AR, 09/26/2008
The investors being spared from losses in this bailout in many cases are foreign shareholders. For instance the Saudis are major shareholders in many of the affected companies. So American taxpayers are oin to be paying taxes eventually, and will sustain a loss due to inflation immediately bailing out foreign investors. The media wont mention this as aspect I bet. Ive been looking up exactly how much foreign investment this would be but it seems the information is difficult to access.
Where are all the fearless reporters, all I see is journalists trying to sell the buyout. What happened to investigative journalism.
From mohave valley, AZ, 09/23/2008
they should have a bilderberger meeting posted on u tube so the average guy can have the same insight on whats really happening with the worlds issues!I mean after all we right to know and we should know well before it slaps us in the face!we need the truth,history books are children read today will be revised to read how woodrow wilson signed are social security rights away!!! look at rothchilds,shiffs,warburgs and play more milton bradleys monopoly!have fun with yourselves
From St. Paul, MN, 09/22/2008
You sheeple are a bunch of semi-educated fools. The obvious plan is to reduce the debt crisis by inflating it away. A few years of double digit inflation will all but make the problem go away. It is annoying that you sheeple will follow your leaders to the end of the world.
S.J. Phred, why should we bail out the gutter trash that bought more than they could afford? They are either brain dead or lost to a risky gamble, either way they deserve to suffer. I shouldn't be held responsible for the actions of the week....survival of the fittest...we need to weed out the trash.
From wichita, KS, 09/19/2008
Bail out, incorrectly defined. More like a buy in. This is a solid investment in our nation. Looking back, using the trusty ol'"hind sight 20/20" theory we will see this is a pivotal point in U.S. History. The credit phenom has hit puberty and is now experiencing some unexpected growing pains. As a result we are learning that faith in highly leveraged "assets" is disfunctional. As affectionate guardians should during thunderous times like these a comprehensive,all inclusive umbrella has been provided to protect us from most of the storm. Our most informed should be at the helm, thus enabling planned future growth through the experience of this life lesson.
From wichita, KS, 09/19/2008
Bail out, incorrectly defined. More like a buy in. This is a solid investment in our nation. Looking back, using the trusty ol'"hind sight 20/20" theory we will see this is a pivotal point in U.S. History. The credit phenom has hit puberty and is now experiencing some unexpected growing pains. As a result we are learning that faith in highly leveraged "assets" is disfunctional. As affectionate gurdians should during thunderous times like these a comprehensive,all inclusive umbrella has been provided to protect us from most of the storm. Our most informed should be at the helm, thus enabling planned future growth through the experience of this life lesson.
09/19/2008
Here's a radical, socialist idea: instead of handing out $600 tax rebate checks, instead of supporting the big companies who thought they were too smart to get caught--give the bailout money to those individuals about to lose their house.
IF they kept their houses, they could continue to pay local taxes, which would help with Federal budget cuts already done. The home owners could continue to buy durable goods. Their mortgages wouldn't be bad, so there would be a trickle-up effect.
And the Republicans would get a good bounce on this, too. Bet no one will promise it on their election ticket, tho :)
From Beloit, WI, 09/17/2008
Regarding David Frum and others of the "conservative" persuasion: It may or may not be that we need more government, but we certainly need smarter government. I do not subscribe to the theory that the "market" will self regulate or that Business is God. This crisis came about because some very smart, but not so honest, people took advantage of other not-so-smart people, with little to no oversight in place to protect them. On the contrary, it appears that those smart people who could have protected those other not-so-smart people were in bed with those original smart - and not so honest - people.
Post a Comment: Please be civil, brief and relevant.
Email addresses are never displayed, but they are required to confirm your comments. All comments are moderated. Marketplace reserves the right to edit any comments on this site and to read them on the air if they are extra-interesting. Please read the Comment Guidelines before posting.
You must be 13 or over to submit information to American Public Media. The information entered into this form will not be used to send unsolicited email and will not be sold to a third party. For more information see Terms and Conditions and Privacy Policy.