Quote:
"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.
Johnson, who until last year was the chief economist at the International Monetary Fund, said that banks will need more rounds of capital from the government because their cushion against losses is too thin. He also said that there is a need to get rid of some of the toxic assets weighing on financial institutions before they can recover.
With that in mind, he thinks that the net cost to U.S. taxpayers for a broadened bailout would be about $1 trillion to $2 trillion, or between 5% and 10% of U.S. gross domestic product. He said this figure is "in line with the experience" of other nations that have tried massive banking system restructuring.
Johnson isn't the first to estimate that the final cost of a bank bailout will be well north of $1 trillion. FBR Capital analyst Paul Miller said in November that just the top eight U.S. financial institutions alone needed at least $1 trillion in new common equity.
Quote:
The KBW Bank index has dropped 35% in January after a 50% plunge in 2008, as investors worry that the government may be forced to nationalize some banks -- and wipe out shareholders in the process. Shares of Citigroup (C, Fortune 500) and Bank of America (BAC, Fortune 500) have been particularly hard hit.
"The big banks are a hope trade right now," Johnson said
http://money.cnn.com/2009/01/27/news/bigger.bailout.fortune/
Open your wallets even further.
"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.
Johnson, who until last year was the chief economist at the International Monetary Fund, said that banks will need more rounds of capital from the government because their cushion against losses is too thin. He also said that there is a need to get rid of some of the toxic assets weighing on financial institutions before they can recover.
With that in mind, he thinks that the net cost to U.S. taxpayers for a broadened bailout would be about $1 trillion to $2 trillion, or between 5% and 10% of U.S. gross domestic product. He said this figure is "in line with the experience" of other nations that have tried massive banking system restructuring.
Johnson isn't the first to estimate that the final cost of a bank bailout will be well north of $1 trillion. FBR Capital analyst Paul Miller said in November that just the top eight U.S. financial institutions alone needed at least $1 trillion in new common equity.
Quote:
The KBW Bank index has dropped 35% in January after a 50% plunge in 2008, as investors worry that the government may be forced to nationalize some banks -- and wipe out shareholders in the process. Shares of Citigroup (C, Fortune 500) and Bank of America (BAC, Fortune 500) have been particularly hard hit.
"The big banks are a hope trade right now," Johnson said
http://money.cnn.com/2009/01/27/news/bigger.bailout.fortune/
Open your wallets even further.