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article imageUS government still owed $1.5 trillion in financial bailout money

By Lynn Herrmann     Aug 8, 2011 in Politics
Washington - As US politicians spent a month haggling over raising the country’s debt ceiling and financial markets around the world remain in turmoil, a new report shows the Treasury and Federal Reserve are owed $1.5 trillion from the financial industry bailout.
Despite upbeat statements by government officials over the financial market bailout’s success, a new analysis of the federal bailout program by the Center for Media and Democracy (CMD), based solely on government records, shows that of the $4.8 trillion in federal funds used to stave off a collapse of those financial markets, $1.5 trillion is still outstanding.
The study went beyond the Troubled Asset Relief Program (TARP), which amounted to $330 billion, and found the government also “quietly” engaged in a multi-trillion dollar bailout, spending an additional $4.4 trillion to avert a failure of financial and mortgage lending sectors. These numbers do not include the auto industry bailout.
“In order to understand the big picture on the bailout, you have to look beyond TARP and examine the trillions the Federal Reserve has disbursed to keep the big banks above water. $4.8 trillion went out the door to aid financial companies and repair the damage they caused to financial markets, and $1.5 trillion of that is still outstanding,” said Mary Bottari, director of CMD’s Real Economy Project, in a statement.
Most of this bailout money, coming straight from the Treasury and Federal Reserve, went to banks as below-market interest rate loans and also for questionable collateral. Here is a link to a complete list of each bailout program, money disbursed, and money still owed in each program.
The study also reveals the US government, as it attempts to deal with the nation’s stagnant housing market, continues propping up the very same financial institutions which initially caused the financial crisis.
Treasury and the Federal Reserve have bought more than $1 trillion in mortgage-backed securities from Fannie Mae and Freddie Mac, both part of the government’s housing program designed to keep mortgage loan money flowing. These purchases allow the two government-sponsored enterprises (GSEs) to continue purchasing and bundling mortgages from banks, sold to Fannie and Freddie at a profit. CMD stated
The banks also benefit from the hundreds of billions in direct loans the government has made to Fannie and Freddie, which the GSEs then turn around and make in insurance pay-outs to banks for mortgages that have gone bad.
CMD calls it a “stark contrast” to the $2 billion spent by Treasury via the Home Affordable Mortgage Program (HAMP), a widely criticized operation designed to help homeowners keep their homes.
Since the beginning of 2008, nearly 9.2 million home foreclosures have been filed, CMD notes, and labels HAMP an “abject failure.”
In a statement, Conor Kenny, lead author of the CMD study, said: “The Federal Reserve and the Treasury have spent $1.6 trillion in a bank-shot to save the mortgage lending market by using the same financial companies that got us into this mess. That’s more than 800 times what they’ve spent directly to keep homeowners in their houses, and the banks have made money off the whole thing.”
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