The financial crisis of 2008 revealed the extremely fragile financial system for the house of cards it was. The government, through the Treasury Department and the Federal Reserve, quickly sprang into action. The massive bailouts, totaling over $200 billion
The financial crisis of 2008 revealed the extremely fragile financial system for the house of cards it was. The government, through the Treasury Department and the Federal Reserve, quickly sprang into action. The massive bailouts, totaling over $200 billion in commitments for the financial system alone, may have bought only a temporary reprieve from that crisis. The Emergency Economic Stabilization Act of 2008 created the Troubled Asset Relief Program with a total of $700 billion available. The Federal Reserve made its own loans to the banking system as it saw fit. Trillions of dollars were loosed from the central bank and the Treasury to keep the system going.
The final amount as calculated by the New York Times comes to a grand total of $2.46 trillion. Adding together the amount of money issued by the Federal Reserve through both rounds of quantitative easing raises that total to $4.81 trillion. Of the bailout money, some financial institutions received a lot more of it than others. Here is a list of the three biggest recipients of taxpayer money during the crisis of 2008 and afterwards.
Federal National Mortgage Association
The Federal National Mortgage Association, also known as Fannie Mae, received a total of $103.8 billion in bailout money, by far the largest single amount disbursed. The federal government took over Fannie Mae on September 7, 2008. Unlike the bailout money in the Troubled Asset Relief Program, the authorization for this action came from the Housing and Economic Recovery Act of 2008, passed in July of that year. As the aggregator and securitizer for hundreds of billions of dollars in mortgage-backed securities, Fannie Mae collapsed when the housing bubble collapsed.
American International Group (AIG)
AIG underwrote and insured credit default swaps for staggering amounts of mortgage-backed securities and other derivatives contracts. When they suddenly turned out to be bombs waiting to explode, AIG received a total of $67.8 billion in bailout money. The government bought a major stake in AIG in addition to taking over Fannie and Freddie outright. Combined with the Federal Reserve’s assurances, the total is actually well over $100 billion, but the taxpayer money committed is less than that. The Treasury essentially owns AIG to this day, but a plan to extricate itself from the company has been put into place.
Federal Home Loan Mortgage Corporation
The Federal Home Loan Mortgage Corporation, also known as Freddie Mac was taken over on Setptember 7, 2008, the same day as Fannie Mae. The total bailout received by Freddie Mac was $65.2 billion, far less than its sibling organization received. Together, these two government-sponsored enterprises posted huge losses in the aftermath of the housing bubble. Taking them over meant infusing a potentially unlimited amount of money into them. To date, only $169 billion has been invested in them by the federal government.
Hundreds of banks received bailouts, from big Wall Street banks to small credit unions. The Wall Street banks like J.P. Morgan, Wells Fargo, Bank of America and Citigroup received tens of billions of dollars in bailout money. Insurance companies, automobile manufacturers, investment funds and state housing organizations also received bailout money. In the end, no one knows whether or not it had a positive effect.