Let’s return to the issue of TARP’s cost.
Author John Talbott, who predicted the economic crisis, tallies what he believes are the real costs of TARP in his October 1, 2010 article in the Huffington Post.
Talbott argues that it is deceitful to claim that TARP cost “only” $50 billion because that ignores the direct and indirect costs of the full range of bailout programs surrounding and supporting TARP. It seems self-evident that the cost of TARP would have been much higher had these other bailout programs not been in place. Here are Talbott’s estimates of the total bailout costs, excluding TARP:
- Fannie and Freddie bailout = $700 billion.
- Federal Reserve printing money to fund purchase of mortgage securities from banks which directly leads to inflation, a hidden tax on consumers and savers = $2 trillion.
- Eventual FDIC losses = $500 billion.
- Credit union guarantees = $50 billion.
- Present value cost of lost interest income to savers due to government's zero interest rate policy = $2 trillion.
- Present value cost of additional unemployment and lost wages caused because the government focused on bank and Wall Street profitability first, rather than on job creation = $5 trillion.
- Total loss in housing values due to inappropriate response to overbuilding and high foreclosures = $4 trillion.
- Cost of future bad loans created since 2008 by Fannnie, Freddie and FHA continuing to lend aggressively into declining real estate markets = $300 billion.
- Wasted stimulus money = $300 billion.
- Total estimated cost of government bailout = $14.85 trillion.
While I accept Talbott’s premise that all bailout costs must be considered in evaluating the TARP program, I believe that some of Talbott’s numbers are too high (for example, $500 billion in losses for the FDIC and $700 billion for Fannie and Freddie). Other losses Talbott includes are not supportable. For example, we have not yet experienced inflation (although we certainly could), and he attributes $5 trillion in cost to lost wages due to the government focusing on healing banks rather than on creating jobs. I know of no way to create jobs without strong banks capable of lending money.