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« Paul And Bernanke Discuss Auditing The Fed & HR 1207 (Video) | Main | Gasparino: Goldman Has No Plans To Give Up Commercial Bank Status (CNBC Video) »
Tuesday
Jul212009

Barofsky: Financial Bailout Tally Could Reach $23.7 Trillion

Later this morning, SIG TARP (Special Inpsector General) and frequent Geithner critic, Neil Barofsky will testify before the Congressional Oversight Panel headed by Elizabeth Warren.  Select details of the report were leaked Monday.  In addition to criticizing Treasury's lack of transparency and unacceptable accounting, Barofsky reaches a mind-numbing, numerical conclusion: total gross committments could potentially reach $23.7 trillion.  And yet the bailout spigot continues flowing, and still no one has been charged with a single felony.

From Bloomberg:

U.S. taxpayers may be on the hook for as much as $23.7 trillion to bolster the economy and bail out financial companies, said Neil Barofsky, special inspector general for the Treasury’s Troubled Asset Relief Program.

The Treasury’s $700 billion bank-investment program represents a fraction of all federal support to resuscitate the U.S. financial system, including $6.8 trillion in aid offered by the Federal Reserve, Barofsky said in a report released today.

“TARP has evolved into a program of unprecedented scope, scale and complexity,” Barofsky said in testimony prepared for a hearing tomorrow before the House Committee on Oversight and Government Reform.

Treasury spokesman Andrew Williams said the U.S. has spent less than $2 trillion so far and that Barofsky’s estimates are flawed because they don’t take into account assets that back those programs or fees charged to recoup some costs shouldered by taxpayers.

“These estimates of potential exposures do not provide a useful framework for evaluating the potential cost of these programs,” Williams said. “This estimate includes programs at their hypothetical maximum size, and it was never likely that the programs would be maxed out at the same time.”

Barofsky’s estimates include $2.3 trillion in programs offered by the Federal Deposit Insurance Corp., $7.4 trillion in TARP and other aid from the Treasury and $7.2 trillion in federal money for Fannie Mae, Freddie Mac, credit unions, Veterans Affairs and other federal programs.

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Reader Comments (7)

If capital collateral value adjustments were the only factor here, we could expect that the number could end at 23.7 trillion, but in fact Barofsky has only uncovered a little more than the tip of the iceberg so far. If we look just at derivatives among the top 5 US holders, notional values have increased to over 246 trillion:
http://www.ibanknet.com/scripts/callreports/fiList.aspx?type=derivatives&sort=interestrate
So notional values are still steadily growing. But the degree of fraud involved in their securitization, which had reached epidemic proportions by 2004 (as evidenced by the FBI report which Geithner IGNORED) is so pervasive, I stand by my March 23rd projection in the Logic of Mathematics at 140 trillion:
http://letthemfail.us/archives/360
Jul 21, 2009 at 9:24 AM | Unregistered CommenterWil Martindale
Wil,

So I understand what you're saying here... Barofsky (no less Geithner) hasn't considered the derivatives liabilties AT ALL? I guess that's to be expected, but isn't that the big fear they all have -- that CDS and other swaps would bring down the house?
Jul 21, 2009 at 10:42 AM | Unregistered CommenterJames H
Actually, according to the OCC, derivatives liabilities were over $200 trillion as of Q4'08 and $202 trillion as of Q1'09. Just so you have an idea what Obama must be losing sleep over ...

OCC’s Quarterly Report on Bank Trading and Derivatives Activities
Fourth Quarter 2008

http://www.occ.gov/ftp/release/2009-34a.pdf

“The notional value of derivatives held by U.S. commercial banks increased $24.5 trillion in the fourth quarter, or 14%, to $200.4 trillion, due to the migration of investment bank derivatives business into the commercial banking system.”

OCC’s Quarterly Report on Bank Trading and Derivatives Activities
First Quarter 2009
Executive Summary
http://www.occ.gov/ftp/release/2009-72a.pdf

“The notional value of derivatives held by U.S. commercial banks increased $1.6 trillion in the first
quarter, or 1%, to $202.0 trillion, due to the continued migration of investment bank derivatives
business into the commercial banking system.”
Jul 21, 2009 at 1:51 PM | Unregistered Commenterspideydouble
It's been almost a year since my last comment on outstanding derivative liabilities and this is old news, but here are the current stats.

OCC’s Quarterly Report on Bank Trading and Derivatives Activities
Fourth Quarter 2009

http://www.occ.treas.gov/ftp/release/2010-33a.pdf

"The notional value of derivatives held by U.S. commercial banks increased $8.5 trillion in the fourth quarter, or 4.2%, to $212.8 trillion."

"Derivatives activity in the U.S. banking system continues to be dominated by a small group of large financial institutions. Five large commercial banks represent 97% of the total banking industry notional amounts and 88% of industry net current credit exposure.

While market or product concentrations are normally a concern for bank supervisors, there are three important
mitigating factors with respect to derivatives activities. First, because this report focuses on U.S. commercial
banking companies, there are a number of other providers of derivatives products whose activity is not reflected
in the data in this report. Second, because the highly specialized business of structuring, trading, and
managing derivatives transactions requires sophisticated tools and expertise, derivatives activity is concentrated
in those banking companies that have the resources needed to be able to operate this business in a safe and
sound manner. Third, the OCC and other supervisors have examiners on-site at the largest banks to
continuously evaluate the credit, market, operation, reputation, and compliance risks of derivatives activities."

How is it even possible that (1) derivative exposure has increased $10 trillion in less than a year and (2) is concentrated in just the top 5 TBTF banks (JPMorgan Chase, Bank of America, Goldman Sachs, Citibank, Wells Fargo)? Investment bank derivatives have migrated into commercial banking where now the top 5 TBTF banks hold 97% versus the rest of the entire commercial banking system? Has no one sent the high-stakes roulette players at Goldman et al. home or at least mandated cognitive-behavioral therapy and Gamblers Anonymous? The National Council on Problem Gambling’s confidential hotline is 1-800-522-4700. Someone, please forward it to these folks. I note that Goldman is still levered 457:1 (see Table 1 on page 23 of the linked PDF). The current bonus system is a perverse incentive to continue what is essentially a gambling addiction.

The fact that commercial banks outside the U.S. may have derivative gambling addictions equal or worse isn't helping me sleep any better. I have absolutely zero faith in the so-called "sophisticated tools and expertise" these TBTF banks have "to be able to operate this business in a safe and sound manner", unless you count extortion techniques for additional taxpayer financed bailout funds from cowards, liars, and thieves in the U.S. Government. In that case, maybe they do have the requisite sophisticated tools and expertise. I also fail to see any specific and compelling arguments as to why on-site examiners (regulators) at the largest banks have any credibility whatsoever to evaluate their reputation and compliance risks. Maybe they can evaluate my reputation and compliance risks on my next trip to Las Vegas, only this time I get to borrow from the Fed at 0% too and am going to go all-in on basket bets every time. My neighbors are good for it if I go bust and I get to keep a nice chunk of winnings from any bets I get lucky on.
May 31, 2010 at 12:19 AM | Unregistered Commenterspideydouble
Hi Spidey, I love the hotline idea, and good to see you. I hope you stick around, it has been a while, hope everyone has a safe Memorial day
May 31, 2010 at 5:17 AM | Unregistered CommenterS. Gompers
hey spidey...nice update...do you care if i make a post out of it...
May 31, 2010 at 8:28 PM | Registered CommenterDailyBail
@DB

Feel free
Jun 1, 2010 at 11:48 AM | Unregistered Commenterspideydouble

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