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Saturday, April 24, 2010

Financial Times Huh ?

The Financial Times Lex team writes

"But the IMF puts the net fiscal cost of the last financial crisis to American taxpayers at 3.6 per cent of gross domestic product – some $513bn – as of end-2009."

Odd the US Treasury disagrees, or rather doesn't accept the end-2009 forecast as currently valid

WASHINGTON - Treasury Secretary Timothy Geithner is telling Congress that the administration believes the final cost of the government's heavily criticized financial bailout effort could be as low as $87 billion.

This is the whole bailout as indicated in the quoted text and the headline "Biggest losses due to government support of Fannie Mae, Freddie Mac."

I don't know exactly what the IMF as quoted (without a link) by The Financial Times claimed. I suppose the cost of the crisis would include the effects of the recession on tax revenues and maybe even the additional spending in the stimulus bill. It is also possible that the IMF predicts that the Federal Reserve Board with lose money and considers this a cost to taxpayers (as opposed to dollar holders via inflation or maybe inflation tax payers in the US and abroad are American taxpayers too I don't know). Anyway, there is no sign of increased inflation tax to put it very mildly.

I think the IMF was marking to market and ignoring the fact that risky assets are worth much more to the US Treasury than to the private sector.

Wait does that mean I'm saying Trillions of value would be created if the US Federal Government invested in common stock ? Yes of course I'm saying that. But but that would be socialism ?!? Yes. So ?

update: Oh noooo. I thought that the ap article ended when it was interrupted by an advertisement. Reading after the ad, I learn that Geithner's calculation includes the net cost gain of the Fed of $ 115 billion. The 87 billion is definitely including everything -- Fannie, Freddie, AIG, Generam Motors, Chyrstler and even homeowner mortgage relief.

The absurdly wrong $ 500 billion from the IMF was the estimate that the IMF got from the US Treasury based on the idea that assets are worth no more to the Treasury or the Fed than they are worth to the private sector.

The problem is that if you note that this assumption was off by over $ 400 billion, then you have to ask if maybe there are hundreds of billions (or trillions) just sitting on the sidewalk waiting to be picked up. They can't ask that question because the answer sounds like proof that socialism is more efficient than capitalism.

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