IMF released a report that attempts to quantify the U.S. bailout costs.
Efforts to stabilise the financial system could end up costing US taxpayers about 13.3 per cent of annual output, or $1,900bn over the next five years, according to analysis by the International Monetary Fund.
That is a nice chunk of change. Financial Times performed a nice little calculation for us.
The dollar estimate, calculated by the Financial Times, equates to about $6,200 (€4,650, £4,200) per head of the population.
I have not verified the correctness of Financial Times' calculation because I am writing this article and I dont' want my blood pressure to increase anymore then it is right now.
Check out this little piece of information.
The IMF research suggests that the medium-term cost of stabilising the financial system relative to gross domestic product will be even greater in the US than in the UK, in spite of the fact that the US banking system is much smaller as a proportion of GDP.
Of course, Treasury Department, Fed and FDIC are questioning the report and the methodology used in it. They believe the numbers are too high. For instance, IMF assumes 10% loss rate on loans but the Fed believes loss rates will be a fraction of the 10% (oh, FDIC believes guarantees will be self-financing net of fees). But 10% is the rule of thumb IMF uses and it is considered conservative. The challenge is that this all depends on the future condition of the economy.
But this leads to a bigger question: is the financial sector just too big?