Friday, September 20th 2013
The US Treasury said that the US governments managed to avoid a catastrophe by granting massive bailouts to private sector corporations.
In a report marking the anniversary of the bankruptcy of investment bank Lehman Brothers, the Treasury defended deploying hundreds of billions of taxpayer dollars to save other banks, major financial institutions and auto companies.
The Treasury report said about the massive bailouts. “Without the government’s forceful response, that damage would have been far worse, and the ultimate cost to repair the damage would have been far higher.” An anonymous Treasury official added “we prevented a collapse of the financial system…That’s why we did it, and that’s the measure of success.”
According to a 2011 study by a pair of PhD students at the University of Missouri-Kansas City the total size of the US bailouts, including not just loans but asset purchases as well excessed $29 trillion. However, that figure has, in turn, been criticised by economist James Hamilton who argued, that the Fed’s bailout commitment under one facility was zero because all the money was paid back.
However, AFP reported that of the $238 billion pumped into more than 700 vulnerable banks, only $3 billion has yet to be paid back. On the contrary, from $182 billion allocated to rescue the giant insurer American international Group, the government counts $205 billion in returns, though that includes $17 billion in paper gains still not realised. Moreover, in the huge operations to save General Motors and Chrysler from bankruptcy, the government put up $80 billion. Still, according to the report by the Treasury, the auto sector rescue is likely to come up $15 billion short.
Even though the Treasury supports that the massive bailouts are paying off, the government deficit rocketed to $1.4 trillion in fiscal 2009 and continued to top $1 trillion until this year. AFP stressed, that the US government debt is currently nearly $17 trillion, compared to just $10 trillion five years ago.
The massive bailouts were under a lot of critic in the US, and a Treasury official told AFP that the US citizens do not really understand what the Treasury managed to do. “The run was stopped, the panic was stopped, the system didn’t collapse…the ripple effects of letting those companies implode would have been huge,” he said. neurope