Over at his blog, CBO Director Peter Orzag has a cost breakdown of the bailout bill or, as the cool kids now call it, the Emergency Economic Stabilization Act of 2008.The most important point is that the bailout will not actually end up costing $700 billion:
"The ultimate cost to the government on the transactions would not be the total amount spent to purchase assets -- limited to $700 billion outstanding at any one time -- but rather the difference between the amount spent by the government and the amount received in earnings and sales proceeds when all of the assets are finally sold, presumably some years from now. That net cost is likely to be substantially less than $700 billion but is more likely than not to be greater than zero."
The fact that this will cost "substantially less" than $700 billion should give some breathing room for those folks who don't believenow, or rather, next January, is a great time for fiscal austerity. The key to maximizing the value of the government'sinvestment, and thus minimizing how much the bailout costs taxpayers, is going to be improving the economy as a whole, so that whatever assets are bought by the government can be sold as profitably as possible. This is likely to mean deficit spending, as Larry Summers argues here.
The consensus view of the bill seems to be that it's better than the original, not as good as it could be, but good enough to vote yes on. It includes provisions that direct the Treasury to support, among other things, investments that affect low-income people, particularly homeowners, and pension and retirement plan investments. The bill also prioritizes the refinancing of troubled mortgages, which is key to controlling this crisis at the ground level, though it doesn't go as far as some legislators had wanted, as Dana discusses. The bill also provides for substantial oversight, including the appointment of a special inspector general. Finally, it allows the government to gain an equity stake in firms that it purchases securities from at lower-than-market prices.
It meets all of the criteria I had hoped for except dealing with the underlying regulatory crisis -- that task will have to await a new administration. For now, we wait for the House vote.
--Tim Fernholz
