Monday, November 24, 2008

Betting the House

$7.76 trillion. Think about that number. Let's write it out:


Roughly half of U.S. GDP last year.

$7.76 trillion is what the government has put on the table so far in this financial crisis in the form of loans, guarantees, capital injections, etc. The latest being the Citigroup bailout.

The government will now pick up the tab in the form of equity injection if Citigroup's assets lose enough value. Citigroup is only one of the largest bank holding companies in the world.

They're betting the house on this one. Who's they? Basically: Paulson, Bernanke, and now Sheila Bair. (HT: Rebecca Wilder).

I've been spending a bit of time on Estonia's economic websites the past few days, wondering if/how I can hasten our move there. Did you know that most Estonians sing in local choirs? My wife will really love that.


Keith Walters said...

Am I the only one who does not care if GM, Ford, and any of these banks go under? Take a brief look at the history of American automobiles or motorcycles and you will see that companies come and companies go even the really big ones. Yes, that is a lot of lost jobs, although I am sure that these "American" companies could fire some positions that have been outsourced but I am sure they will cut American jobs first, which is precisely why I don’t care, sorry. These companies do not exist for the good of the American public, they exist for profit. So let’s stop pretending that they are altruist automotive manufactures looking out for you and me. They exist for profit and as such they will live and die like every other entity within a free market economy. Subsidization is one of the reasons why American cars stink in the first place, throwing money at them created this problem so let’s not continue to do the same thing. I for one am ready to see them die. If the ingenuity and innovation that once marked the American people continues then I am sure we will see a new American automotive company come to the fore and produce cars that can actually compete in the current market. Until that day comes I am going to continue to drive foreign cars.

JTapp said...

Well, the auto companies are (as of yet) not included in the 7.76 trillion unless the Fed has bought some of their commercial paper.

But, no, you're not alone. Some of the auto companies will cease to exist no matter what.

From a textbook I use, studies have shown that automobile manufacturers must make about 1 million cars before per-unit costs of those cars are minimized (enjoying economies of scale). Annual demand for cars in America has been about 6 million. Meaning that the market can only sustain about 6 manufacturers.
Recently, demand has dramatically decreased. That means someone has to go. The foreign manufacturers are still profitable and have low costs. They'll survive no matter what.

JTapp said...

And the sum is now up to $8.5 trillion. What's an extra trillion among friends?