Sometimes, I hate the media

Ok, I admit, I'm a media junkie. Every morning, I try to read Bloomberg, the NYTimes, the Financial Times, and the Washington Post. (The Wall Street Journal is still subscription based, so I'm hosed on that one.) I subscribe to breaking news from the FT, CNN, and MSNBC. I will occasionally read MSNBC articles, Seekingalpha, Minyanville, and a few financial blogs. I'm also reading blogs at the Council on Foreign Relations, and even watch C-Span whenever i want to see members of Congress go medieval on the whipping boy of the moment. (Maxine Waters v. Hank Paulson and Richard Shelby v. Mullaly/Wagoner/Nardelli were particularly brutal.)

And I realize that the media needs to sell - "If it bleeds, it leads" makes a whole lot more sense when I learned more about how journalism works in a flat-ish world. (Thanks go to Bruce Lewenstein of Cornell's Communications department for an excellent class - COMM 566: Science Communication.)

But goddamnit, it's not $7 trillion dollars!

Let me explain. Bloomberg ran a story on Nov 24* that the total federal outlays for the purpose of rescuing/repairing/bailing out the American financial system could total $7.76 trillion dollars. (By comparison, US GDP is about $13 trillion (2006), the US 2009 Federal Budget (pdf) is $3.1 trillion, total national debt is $10.64 trillion, and debt held by the public is $6.4 trillion.) Alternatively, it's equal to 155 trillion kg of nickels (1 nickel = 5.00 g), roughly equal to 40 times the total mass of all oil produced in 2001. (I love wikipedia... for some things.)



* Sorry, original article appears to be gone - copy comes from the oh-so-appropriately-titled Conspiracy Cafe.

Ever since Bloomberg ran the story about the $7.6 trillion, I've seen that figure splashed everywhere. And while expansionary fiscal policy (read: printing money) may be in the cards, there is nowhere near $7 trillion in expected liability to the American taxpayer.

If you read their analysis carefully, you see that the total reflects all of the funds deployed by the Fed and the Treasury, the vast majority lent against collateral. Now, we can speculate on what the collateral is worth, but it is most likely not zero. Forget mark-to-market; part of the reason some of these assets have been pledged is because the markets for them are illiquid at prices near to those listed on the banks' books. (You can get price discovery, as Merrill did when it unloaded some $30 bn in MBSs at 22 cents on the dollar. This, however, would probably lead to most large banks not being in compliance with Federal regulations on reequired Tier 1/Tier 2 capital ratios, and, more importantly, a complete collapse in faith in the banks.)

This bugs me because the political pressure to avoid further government action will increase. People are already pissed about the unfortunately-termed bailout, as well as Paulson's necessary but politically inept handling of the TARP program.

It makes for a great headline, but it's a huge distortion of the facts. And the more pressure is put to avoid ANY government countercyclical fiscal policy, the more likely we will have a long, protracted recession with ever-more job losses.

By all means, do your job and throw light on the stinking carcass of our financial system. Transparency will help. But don't you dare contribute to an implosion of confidence by writing misleading headline - you're putting jobs and livelihoods at risk.