Are you keeping score? Some the big events over the past 3 months: First, the government seized control of mortgage giants Fannie Mae and Freddie Mac, extending as much as $200 billion in Treasury to support the two companies. Then, in one of the most dramatic days in Wall Street’s history, Merrill Lynch (Wall Street's third largest bank) agreed to sell itself to Bank of America, while another prominent securities firm, Lehman Brothers, filed for bankruptcy. Shortly thereafter, the Federal Reserve agreed to an $85 billion bailout (later raised to $150 billion) that gave the government control of one of the world's largest insurance companies, AIG. On Sept. 20, the Bush Administration asked Congress for $700 billion to bail out firms with bad mortgage debt, the largest since the Great Depression. In late September, the government seized control Washington Mutual, in by far the largest failure of a US bank in history. That same week, the government gave the "Big Three" automakers a $25 billion dollar low interest loan (they are now requesting a $25 billion bailout from the government). Wells Fargo then bought Wachovia for cheap. After announcing that it would be cutting 53,000 jobs last week, Citigroup had to be rescued by the government in a $20 billion bailout this past weekend. As part of the plan, the Treasury and the FDIC will guarantee against the "possibility of unusually large losses" on up to $306 billion of risky loans and securities backed by commercial and residential mortgages. What does all that add up to? (and I didn't mention the failure of Bear Stearns in March or any of the events outside of the US) Let's just say that $700 billion Congress approved was a drop in the bucket:
The U.S. government is prepared to provide more than $7.76 trillion on behalf of American taxpayers after guaranteeing $306 billion of Citigroup Inc. debt yesterday. The pledges, amounting to half the value of everything produced in the nation last year, are intended to rescue the financial system after the credit markets seized up 15 months ago.
The unprecedented pledge of funds includes $3.18 trillion already tapped by financial institutions in the biggest response to an economic emergency since the New Deal of the 1930s, according to data compiled by Bloomberg. The commitment dwarfs the plan approved by lawmakers, the Treasury Department’s $700 billion Troubled Asset Relief Program.
For a full breakdown of the where the government is spending that $700 billion, check this out. Reuters has a great timeline of the crisis.
Obama sketched out his plan for dealing with the crisis during the announcement of his pick for Treasury Sec, Timothy Geithner:
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