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New Bailout Price Tag: $2.25 Trillion Dollars

On Monday, I said that the total cost of this bailout could scale up to $3 trillion -- I just didn't imagine it would happen by Wednesday.

We learned yesterday that the size of the bailout just tripled, from $750b to $3T. Here is the cost structure:

• $250 billion of capital into banks;

• Guarantee $1.5 trillion in new senior debt issued by banks;

• Insure $500 billion in deposits in noninterest-bearing accounts (primarily businesses accts).

In exchange for this largesse, the treasury, on behalf of taxpayers, receives:

• Preferred shares that pay a 5% (rising to 9% after five years);

•No voting rights for government;

• Warrants to purchase common shares = to 15% of initial investment

All told, its a massive program that makes my earlier forecast of 2-3Trillion obsolete. New forecast is now double: $4-6 trillion dollars . . .

More details at articles below . . .

Sources:
Drama Behind a $250 Billion Banking Deal
MARK LANDLER and ERIC DASH
NYT, October 14, 2008
http://www.nytimes.com/2008/10/15/business/economy/15bailout.html

Bailout Critic: Plan Could Cost $3 Trillion
ALICE GOMSTYN
ABC NEWS Business, Oct. 13, 2008
http://abcnews.go.com/Business/Economy/story?id=6022145&page=1

Americans Embrace Big Government to Help Solve Market Crisis
Edwin Chen and Matthew Benjamin
Bloomberg, Oct. 15  2008
http://www.bloomberg.com/apps/news?pid=20601070&sid=alhCRwBpIK0U&

Devil Is in Bailout's Details
Government's $250 Billion Cash Injection Sparks Welter of Issues
DEBORAH SOLOMON and DAVID ENRICH
WSJ, OCTOBER 15, 2008
http://online.wsj.com/article/SB122398468353632299.html

Wednesday, October 15, 2008 | 11:00 AM | Permalink | Comments (46) | TrackBack (0)
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Comments

I wonder if Cheney's heart difficulties this morning are from the sudden realization that deficits do matter, but his moment of epiphany just happens to be a tad late.

Posted by: Stuart | Oct 15, 2008 11:09:16 AM