Where's this bailout cash coming from?
The Fed soon starts lending directly to corporations, plus it's pledged unlimited dollars to foreign central banks. So, just how much is this gonna cost, and where's the Fed getting the money? Steve Henn finds out.
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, Fed. Budget/Govt. Spending, America's Financial Crisis
Links
TEXT OF STORY
Kai Ryssdal: With government bailouts come some really big numbers: $700 billion for the original Paulson plan, plus another $130 billion Congress tacked on. Two hundred billion for Fannie Mae and Freddie Mac; more than $100 billion for AIG. On top of that the Federal Reserve's about to start lending directly to companies and, as we told you yesterday, it's given foreign central banks unlimited lines of credit.
As we start making the shift from covering the bailout to tracking the fallout from it, we asked Marketplace's Steve Henn to add up all those line items and explain where the money's going to come from.
Steve Henn: OK, here's the first thing you need to know about the Fed: It owns the printing press, so it can magically make money. [printing press sound] But there are down sides to revving up that big green machine in the Fed's basement. Remember the Weimar Republic? [tape of "Wilkommen" from the musical "Cabaret"] OK, I don't know either, but back then the Germans tried printing money to bail out their economy. They got hyperinflation. The Fed wants to avoid that. So, if the Fed's not printing money, where is all this cash coming from?
Ken Kuttner: It's basically borrowing from the Treasury.
Ken Kuttner is a professor of economics at Williams College. He says the Fed started this crisis with an $800 billion war chest. Since then, the Fed's been busy lending money at low rates, bailing out a few huge banks and trading T-bills for hundreds of billions of dollars in mortgage-backed securities. Now that war chest is almost wiped out. So last month without hardly any public debate, the Treasury began issuing new debt and giving the cash to the Federal Reserve.
Since then, the Treasury has forked over half a trillion dollars. That's not bailout cash, that's half a trillion you haven't heard about before. The Fed's used this cash to make new loans. As collateral for those loans, Kuttner says, the Fed's accepted a lot of questionable assets.
Kuttner: Nobody really knows exactly how big the risks are.
But one thing's for sure, if the Fed doesn't get paid back, the Fed can't pay the Treasury back and U.S. taxpayers will end up on the hook. Or I suppose the Fed could just start printing money. [Tape of "Money" from the musical "Cabaret"]
In Washington, I'm Steve Henn for Marketplace.
Comments
Comment | Refresh
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.