"Congressional Leaders Stunned by Warnings", plus a summary of recent Treasury activity

NYT: "Congressional Leaders Stunned by Warnings...As Fed chairman Bernanke laid out the potentially devastating ramifications of the financial crisis before Congressional leaders on Thursday night, there was a stunned silence at first......Congressional leaders were told “that we’re literally maybe days away from a complete meltdown of our financial system, with all the implications here at home and globally.”....[Bernanke and Paulson] described the financial system as effectively bound in a knot that was being pulled tighter and tighter by the day."

---

U.S. Treasury's Troubled Asset Relief Program (TARP) [ http://calculatedrisk.blogspot.com/2008/09/bailout-proposal.html ]

- Paulson's statement on Friday [ http://calculatedrisk.blogspot.com/2008/09/paulson-transcript-troubled-asset.html ]

--- $700 billion - new entity: "The Secretary’s authority to purchase mortgage-related assets under this Act shall be limited to $700,000,000,000 outstanding at any one time"

--- Raises U.S. Debt ceiling to $11.3 trillion (+$715bn)


- $600+ billion -- provided by Treasury/Fed in the past 2 weeks (liquidity and notional risk)
--- $315 bn to support enterprises: $200bn FNM/FRE, $85bn AIG, $29bn BearStearns
--- $180+ bn in new Fed 'window' activity (accepting private paper in exchange for Treasuries)
--- $200+ bn to (partially) refill the Fed's reserves, and prepare for FDIC refill


- $1 trillion (at least) - total bad debt to be absorbed (U.S.- gov't, commercial, consumer)
--- cost to taxpayer (not including stock market devastation, home values, etc): $300bn ?

--- ---

For comparison:

- U.S. S&L crisis: RTC liquidated $400bn in assets, lost $125bn (1989-95)
- cost of Iraq/Afghan War so far - direct costs: $600bn , indirect: at least that again
- cost of WWII (U.S.) - $ 4 trillion (2007 dollars)
- Total U.S. federal budget: $2.5 trillion.
- U.S. economic activity: $13.5 trillion in 2007
- Total net worth of U.S. households & not-for-profits: $50 trillion