Bloomberg Analyst: $700 Billion Bailout Could Balloon to $5 Trillion
Marc Faber Ltd. director calls initial cost estimates a 'drop in the bucket,' says real solution is to bring down overleveraging.
By Jeff Poor
Business & Media Institute
9/26/2008 11:09:16 AM
Conservative House Republicans and economists warn about the toll a $700 billion federal bailout of the financial sector would have on the taxpayers footing the bill. But according to Bloomberg TV analyst Marc Faber, the actual cost could be closer to $5 trillion.
Faber, author of the “Gloom Boom Doom” report, appeared on Bloomberg TV’s Sept. 26 broadcast of “Bloomberg Today” and noted just how small the proposed $700 billion bailout is compared to the overall U.S. credit market.
“So now they try to solve the problem by having this credit bubble actually extended and I think the $700 billion will be like a drop in the bucket because the total credit market in the U.S. is something close to $60 trillion, then you have the CDS market – credit default swap – of around $62 trillion. Then you have the whole derivatives worldwide worth about a notional $1,300 trillion. So the $700 billion is really nothing and the Treasury is just giving out this figure when actually the end figure may be $5 trillion.”
Faber, managing director of Marc Faber Ltd., is known for predicting the October 1987 stock market crash one week before it happened.
In his Bloomberg TV analysis of the financial bailout, Faber noted the inconsistencies of government intervention to date, but not without taking a swipe at the compensation of Wall Street executives.
“The reaction to that is inconsistent,” Faber said. “You let essentially Lehman Brothers go bankrupt but you save AIG and you save other brokers by merging them with banks and then you come with a bailout plan that should be paid by the taxpayer, when Wall Street last year in total received a compensation of $69 billion - $38-39 billion of which were bonuses paid to the executives essentially of Wall Street.”
Faber told “Bloomberg Today” host Jeremy Naylor the solution isn’t government intervention through a bailout, but to figure out how to eliminate the excessive leveraging in U.S. financial markets.
“Well first of all, I think the decline of home prices of 20 percent is a relatively minor decline so far,” Faber said. “And it’s created so many problems. It’s not the problem that home prices have gone down. The problem is excessive leverage. And somewhere, somehow, the U.S. has to try to bring down the excess leverage that exists in the system – that incidentally was built over the last seven to 15 years under Fed chairman Mr. Greenspan and then also under Mr. Bernanke.”
So let's do the math, we wrote a 940 Billion dollar check to the banks last week and now they want 700 Billion ; but remember folks - Financial derivatives by the BIS last JUNE was $516 Trillion ... , and congress just approved a 1 Trillion dollar defense budget, the largest in our nation's history. This 700 Billion dollar figure is put before the American people as a cover to what is really going on. "Look, you have a say on this 700 Billion dollars!" while lending upwards of 5 Trillion dollars. People should be outraged over this, instead we continue to try to live our lives as if nothing is wrong... business as usual.... but yeah - we're fucked.
