January 27, 2009
The cost of the bank bailout is likely to be much higher than $700 billion.
While the Obama administration hasn’t asked Congress for more money yet, some experts warn that government spending on support for struggling financial services companies will ultimately reach into the trillions of dollars.
The first half of the controversial $700 billion program to help banks has already been spent — mostly on buying up preferred shares of troubled banks.
Part of the remaining $350 billion may be used to purchase troubled assets from bank balance sheets and place them in what Federal Deposit Insurance Corp. chief Sheila Bair has dubbed an “aggregator bank.”
And while taxpayers will surely recover some of that sum eventually, more money is likely to be needed in order for the bank rescue to work.
“The amount of working capital you’d expect the government to take into this would be around $3 trillion to $4 trillion,” said Simon Johnson, a senior fellow at the Peterson Institute for International Economics and author of its Baseline Scenario financial crisis blog.