So, a few months back, I found some work by Barry Ritholtz useful in getting a handle on this vastness. US-centric but no less applicable to the UK and the wider world - as of December 2008 total committed tax-payer funded 'bailout' monies to US companies was nudging $4.7 TRILLION. Today it is substantially more and rising. Barry Ritholtz takes up the story:
But wait! - as if all that were not 'mind-numbing' enough, - there's more: The unfunded liabilities of the US Government now exceed - wait for it - $65 TRILLION. That's the 'Net Present Value' of those liabilities which is the standard accounting method of valuing future cash-flows. The biggest items are pension, medical and social security promises to an ageing population. Proportionally the situation is very similar here in the UK. All of which means that, if these promises are to be kept then the poor bloody taxpayer is on the hook for them too.
Crunching the inflation adjusted numbers, we find 'the bailout' has cost more than all of the following big budget government expenditures – 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
- Savings & Loans 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: $551b, 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: Just $3.92 trillion
But, The Coup de Grace, the number which pretty much guarantees that these obligations will NOT be met and that the sovereign debt of the USA, the UK and a good few more 'developed' countries will be either defaulted or devalued to 'manageable proportions' by resort to the monetary printing presses, is this:
That is the notional value of financial derivative contracts currently outstanding (ie financial bets on financial bets to maybe the 3rd or 4th power made with margin loans of anywhere from 5-100:1) and which governments are desperate to protect with all these bailouts. (For context again, the total value of ALL the worlds stock markets is currently around $50 trillion).
Apologists for the system and the talking head financial entertainers of Bloomberg, CNBC et al will tell you that the $700 trillion figure is indeed 'notional' and that in fact it nets down close to zero when open interest positions are offset against each other. The BIG problem with this whistling past the graveyard is that, if it really did net down to zero (or even 10-15% of notional value) in terms of the risk it is alleged to 'spread', then there would be no need for continuing bailouts which are little more than desperate attempts to hide what the markets suspect is their true net value in the event of cascading defaults, together with the identity of the household name companies that would be on the hook for the resulting tsunami of bankrupting losses. Those with the best handle on their true net value are governments and their Central Banks. They are scared witless by that insight and therefore not telling.
The whole OTC derivatives market is really nothing more than an enormous, unregulated casino run on vastly leveraged credit. Amazingly it is STILL operating, but The House (in the persona of its major contract providers) is now broke. It knows it, governments know it, the markets suspect it - but the poor bloody taxpayer is still just frightened, confused, angry and largely ignorant of the true extent of the epoch-defining shit storm that really has only just started.