Arnold Kling  

Neil Barofsky's Dog Whistle

Why I am Not a Republican... The Insider Narrative...

Apparently, humans cannot hear what the TARP whistleblower is saying, which is that the government bailouts could wind up costing taxpayers $23.7 trillion.

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.

I cannot speak to all of Barofsky's estimates, but I can almost guarantee that Freddie and Fannie are in the process of racking up huge taxpayer losses. They are losing money on loan modifications. They have been providing mortgage loans at 5 percent or less, when unsubsidized market rates would be much higher. I do not have many contacts at Freddie Mac any more, but the folks I talk to despair that the company is nothing but a political vehicle at this point, with profit considerations nonexistent.

Of course, the Fed/Treasury view is that there are no losses anywhere. It's just a matter of restoring confidence in financial institutions. I just wish I could have some confidence in the Fed or the Treasury.

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COMMENTS (13 to date)
Huxley writes:

Just maybe Peter Schiff is on to something when he says to sell US bonds and buy gold. :)

Alex J. writes:

We clearly need a systemic risk regulator.

Sam Wilson writes:

As a thought exercise, I tried imagining what $23.7 trillion looks like. I drew a blank. I can grasp the distance from the Earth to the moon, even from the Earth to Mars in terms of distances I've driven (or navigated at sea). I can fathom tonnage mined from an active quarry in terms of bags of sand or concrete I've lifted. I can even get an inkling of farm output in terms of hamburgers I've eaten or tomatoes I've harvested. However, I simply have no cognitive tools to help my poor, befuddled brain process such a vast amount of treasure.

This is quickly becoming a Cthulhuean scenario, bizarre numbers replacing shambling monstrosities from the deep, hauling financial horror o'er the land. I fear we have broken the fourth wall of the theater of the absurd, players smoking cigars and farting in our midst.

$23.7 trillion. Say it a few times. It quickly takes the tone of a small child making up numbers: "a million billion gajillion". Uncanny.

ThomasL writes:

The Treasury rebuttal needs enshrined for all time:

“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.”

Proof positive some people can never learn a lesson. I mean, they have a diversified portfolio of underwater financial lending institutions, and a forty foot high stack of obligations related to home loans. What are the odds that any disruption in the economy might affect them all at the same time? Oh, wait...

Chris writes:

From Barry Ritholtz - in order to get to the $23.7 Trillion figure, the following would have to occur:

• It includes estimates of the maximum cost of programs that have already been canceled or that never got under way.
• It assumes that every home mortgage backed by Fannie Mae or Freddie Mac goes into default, and all the homes turn out to be worthless.
• It assumes that every bank in America fails, with not a single asset worth even a penny.
• And it assumes that all of the assets held by money market mutual funds, including Treasury bills, turn out to be worthless.
• It would also require the Treasury itself to default on securities purchased by the Federal Reserve system.
• Every dollar invested by the government in banks would have to become worthless
• The banks would have to default on securities guaranteed by the F.D.I.C.
• All the collateral posted by the banks to get loans from the Fed would also have to become worthless.

Hal writes:

The US economy is past the point of turning around easily. The dollar is basically a zombie. My plan is to be sure to get out of debt and put some of my money into wealth securing assets like commodities,coins, and the like.

The moves our government is making will I think cause a very slow recovery because taxes will go up to pay for all bailouts and health care.

Add to this that foreign powers do not want to buy our debt and we're in a heap of woe. Which may explain why gold is not really seeing the summer duldrums it normally does and Peter Schiff is probably right. Right now, looking at ExactPrice (, it's trading at $948.50.

Crawdad writes:


So maybe it will only be 10-12 TRILLION. No problem. Right?

Crawdad writes:

Sam Wilson,

Here's a nice visual of what just one trillion looks like.

Jim Glass writes:

I can almost guarantee that Freddie and Fannie are in the process of racking up huge taxpayer losses.

But how is this possible?

When we had it from Joe Stiglitz himself, back in 2002....

"the risk to the government from a potential default on GSE [Fannie Mae] debt is effectively zero...the expected cost to the government of providing an explicit government guarantee on $1 trillion in GSE debt is just $2 million."

[via Falkenblog]

Sam Wilson writes:


Ha ha. Yeah, I actually had that as my facebook profile pic for a short time. Great site. Pretty wild that Serious Men with Serious Neckties feel comfortable frittering away the resources that such a sum represents.

Indeed, I think that site and the visual representations therein make it even harder for me to grasp just how shockingly huge a trillion smackers is. You'd need the warehouse at the end of Raiders of the Lost Ark to hold that much currency.


Niccolo writes:


Clearly we need it to be the guys that started this mess too. It'll give them a chance to redeem themselves.


Jim S writes:

I hardly think it's fair to call Neil Barofsky a whistle blower. While I don't think your comment was meant to demean his role, all things considered regarding TARP/EESA and economic stimulus as a whole, by virtue of his position as Special Inspector General, he's a potentially strong ally for the public when it comes to forcing the Fed and Treasury to comply with our desire for transparency. Furthermore, his testimony regarding the 23 trillion dollars also included the phrase "not likely". But, as other comments have pointed out, even half that figure is a big deal.

Your point is well taken though - that people will turn a blind eye to these reports. Transparency is novel idea, unfortunately. It should be considered a serious opportunity for the public to force accountability.

Mike Rulle writes:

While government backstops accelerate the no longer feared "moral hazard" reality, Barofsky does not help the argument. As "Chris" writes above, it is hypothetical. While he is at it, why not raise the number to $250 trillion, the net worth of the world? When the 23.7 bailout happens, everyone will be trying to sell everything, and all values will collapse to zero. We will be eating leaves from our trees to stay alive, and it will be a Mad Max world.

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