What’s the tab for the bailout? Take your pick

John W. Schoen Senior producer • Profile • E-mail

It started out as a simple question.

How much money has the federal government thrown at the financial crisis since the recession first began over a year ago?

Exact figures remain elusive, like most of the way the government handles and accounts for money, and it's complicated by a simmering alphabet soup of programs aimed at revving up the economy. The bottom line also depends on whom you ask.

Turns out it would be easier to count the squirrels in Central Park than arrive at a precise answer.

So far, cash commitments made by various bailout efforts — including the Treasury's $700 billion Troubled Asset Relief Program bailout and various lending programs by the Federal Reserve — are just shy of $3 trillion, Neil Barofsky, special inspector general for TARP, told the Senate Finance Committee March 31.

But the net cost to taxpayers will be much lower — more like $356 billion in direct spending — according to an analysis published last month by the Congressional Budget Office.

An analysis by msnbc.com concludes that Congress, the Fed and government agencies have announced plans to spend $7.2 trillion to fight the economic downturn, with the vast majority of that coming in the form of loans and loan guarantees. (See graphic above.)

But the Fed and other agencies typically deflect any such attempts to total up the costs of the spending and lending.

At a March 24 House Financial Services Committee hearing, Rep. Michele Bachmann, R-Minn.,  demanded that Fed Chairman Ben Bernanke cite the constitutional basis for the central bank’s aggressive moves to stem the financial panic, saying, “This has been over $10 trillion that we're talking about.”

“I don't know where $10 trillion comes from,” Bernanke replied curtly.

The government’s response to the 16-month-old recession and financial panic has been as complex as it is vast. Dozens of separate programs and spending packages have been unleashed by the Fed, the Treasury, the Federal Deposit Insurance Corp. and other agencies. These programs fall into two broad categories: call them lending and spending.

Most of the lending, by far the biggest pile of cash, has come from the Fed. Created in 1913 after a series of devastating financial panics, the central bank was designed as the lender of last resort. Since the crisis began, the Fed has lent with a vengeance. But for each of the Federal Reserve notes (aka dollars) it has handed out, the Fed has taken back some form of collateral, usually a relatively high-quality bond—on which it collects interest.

That is, after all, what the Fed has done for the past 95 years. For most of that period, the Fed stuck to swapping cash for the safest debt securities — U.S. Treasury notes, bills and bonds. When the financial panic hit in September, lending all but dried up as panicked investors and bankers hoarded cash. The Fed responded by widening the type of securities it was willing to accept as collateral and began spraying money at the economy like a fire brigade trying to contain a five-alarm inferno.

Seizing on an obscure clause, Section 13.3 in the law that created the Fed, the central bank invoked virtually unlimited powers to expand its lending to “any individual, partnership, or corporation” when confronted with “unusual and exigent circumstances.”

The Fed’s use of that lending power has been prolific. When the crisis began in September, the Fed’s balance sheet — the accounting of how much it holds in investments against its cash loans outstanding — stood at about $940 billion. By year-end, that number had swelled to $2.3 trillion, fueled by an alphabet soup of “lending facilities” created at a pace and scope never imagined.

The Term Auction Facility, for example, expanded the list of lenders and the type of collateral accepted for cash. In normal times, the Fed lends only to an elite list of the biggest banks and “primary dealers,” which it uses as conduits to the wider financial system. Before long, the list would include a troubled insurance company and a failing investment bank that had made too-risky bets.

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