Credit crisis bailout ‘largest outlay in American history,’ author says

(Photo/bitzcelt, Flickr)

(Photo/bitzcelt, Flickr)

It’s enough to make your head spin. Seems like every time we turn around, someone’s proposing another multi-hundreds of billions of dollars to bail out this, shore up that or rebuild something or other. Remember in the distant past of September, when the $700 billion rescue plan shocked everyone from Wall Street to Main Street? That was just the beginning.

In just the last few days, the new sums flying around — pushing each other off the front page before the ink dries — are positively staggering: Since Friday, President-elect Barack Obama’s proposed stimulus plan emerged as perhaps $700 billion to fuel jobs and growth; on Sunday, federal institutions committed to back up $306 billion in troubled Citigroup assets and agreed to invest $20 billion in the company, on top of $25 billion already sunk into the banking giant; and on Tuesday, Treasury Secretary Henry Paulson announced an $800 billion plan to thaw frozen credit markets.

That’s nearly $2 trillion, on top of the hundreds of billions already committed. And that doesn’t even include the $25 billion auto industry titans came hat-in-hand for last week — few believe that would be sufficient, but in any case, at this stage, that’s chump change.

Barry Ritholtz, author of the forthcoming Bailout Nation, tallied up the numbers and ran some comparisons on his The Big Picture blog on Tuesday — with some sobering results.

Ritholtz comes up with a conservative $4.6165 trillion in bailout costs so far — not including Obama’s proposed stimulus package to add 2.5 million jobs by tackling infrastructure, energy and other improvements. “People have a hard time conceptualizing very large numbers,” Ritholtz understates, “so let’s give this some context. The current Credit Crisis bailout is now the largest outlay in American history.”

Take a moment to read that again. So far, we’re talking about more money than we’ve ever spent on anything. Ever. On anything.

Exactly what does that mean? Ritholtz had a research firm crunch the numbers to provide the context. In inflation-adjusted dollars, the bailout will cost more than everything the U.S. government spent on all these endeavors — combined:

Marshall Plan: Cost: $12.7 billion, Inflation Adjusted Cost: $115.3 billion
Louisiana Purchase: Cost: $15 million, Inflation Adjusted Cost: $217 billion
Race to the Moon: Cost: $36.4 billion, Inflation Adjusted Cost: $237 billion
S&L Crisis: Cost: $153 billion, Inflation Adjusted Cost: $256 billion
Korean War: Cost: $54 billion, Inflation Adjusted Cost: $454 billion
The New Deal: Cost: $32 billion (Est), Inflation Adjusted Cost: $500 billion (Est)
Invasion of Iraq: Cost: $551 billion, Inflation Adjusted Cost: $597 billion
Vietnam War: Cost: $111 billion, Inflation Adjusted Cost: $698 billion
NASA: Cost: $416.7 billion, Inflation Adjusted Cost: $851.2 billion

TOTAL: $3.92 trillion

That’s right, fixing the credit crisis will cost more than buying half the country, fighting three costly wars, saving the country from the last depression, fixing the last home loan crisis, building the middle class, exploring space and putting a man on the moon.

There’s only one expenditure that even comes close, Ritholtz found:

World War II: Original Cost: $288 billion, Inflation Adjusted Cost: $3.6 trillion

Do the math: What was probably the greatest endeavor in human history, mobilizing the entire nation across the globe, cost roughly a trillion dollars less than fixing the credit crisis unfolding in today’s headlines. “Go figure,” Ritholtz observes. “WWII was a relative bargain.”

Of course, the government is trading some of its bailout bucks for warrants or other stakes in the beleaguered financial institutions — and might even wind up with some foreclosed houses to show for its stewardship of Fannie and Freddie — so the commitments don’t reflect some money that might eventually return to taxpayers.

But let’s compare apples to apples: World War II left taxpayers with more than a few returns too, including pretty much the only standing military in the world, thousands of trained pilots anxious to invent modern commercial aviation, members of the 10th Mountain Division anxious to invent the modern ski industry — not to mention defeating fascism and saving civilization. Most of the bailout and stimulus funds are intended simply to return America to the way it was a few years ago, albeit with more solar panels and fewer crumbling bridges.

Bloomberg calculates the rescue efforts at an even heftier $7.4 trillion — and that doesn’t include Sunday’s Citigroup bailout or Obama’s stimulus package. Take a look at this interactive chart to see where all the money is going.

Even though Ritholtz estimates expenditures so far at $4.6165 trillion, he cautioned against finding any safety in those numbers. “I estimate that by the time we get through 2010,” he writes, “the final bill may scale up to as much as $10 trillion.” If that’s the case, add up all the expenditures Ritholtz listed above — from the Louisiana Purchase to the moon landing, the New Deal to the Vietnam War — and throw in World War II for good measure, and it still won’t total as much as the federal government commits to solve the credit crisis over the next couple years.

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About the Author

Ernest Luning

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