Keeping Tabs

A change in tax law designed to encourage bank mergers could cost $140 billion in lost revenue. Another change quietly slipped into IRS rules makes it easier for U.S. corporations to use profits from foreign subsidiaries - a move that could actually encourage them to ship even more American jobs overseas. What's the impact on the treasury? No one knows for sure. While the $700 billion Wall Street bailout approved last Friday by Congress and President Bush grabbed huge headlines, the price tag fo

A change in tax law designed to encourage bank mergers could cost $140 billion in lost revenue. Another change quietly slipped into IRS rules makes it easier for U.S. corporations to use profits from foreign subsidiaries - a move that could actually encourage them to ship even more American jobs overseas. What's the impact on the treasury? No one knows for sure. While the $700 billion Wall Street bailout approved last Friday by Congress and President Bush grabbed huge headlines, the price tag for trying to stop the financial bleeding is much, much more than that. The total tab could come to $2.5 trillion in cash infusions and loans.

So far:

  • There's the $700 billion Wall Street bailout;
  • There's the $700 billion Wall Street bailout;
  • Treasury's $140 billion tax break is designed to make it easier for "healthy" banks to merge with troubled banks;
  • The IRS is making it easier for U.S. companies to borrow money from their foreign subsidiaries without tax consequences - a move that also could provide incentives for companies to ship jobs overseas.
  • The bailout of American International Group took the form of an $85 billion loan;
  • Bear Stearns got a $29 billion loan from the Federal Reserve;
  • Fannie Mae and Freddie Mac will get $200 billion and possibly a lot more;
  • The Federal Reserve has loaned big banks more than $400 billion;
  • The Fed will provide as much as $600 billion in short-term loans to corporations;
  • The Treasury has provided $50 billion from the Exchange Stabilization Fund to shore-up Money Market Mutual Funds;
  • Congress provided $25 billion in loans to the auto industry;
  • If Citigroup acquires Wachovia; the Federal Deposit Insurance Corporation will guarantee up to $267 billion in high-risk home loans that got Wachovia into trouble.


Add it all up and the federal government will be providing as much as $2.5 trillion to banks and big businesses.

That's probably not the end of it.

The next big bailout could be for the Federal Deposit Insurance Corporation. The FDIC will now insure bank deposits of up to $250,000; and the Treasury is insuring all money market mutual funds without a cap. Before the $700 billion bailout, the FDIC insured bank deposits up to $100,000. These deposits total $4.5 trillion. The FDIC only has $45 billion on hand to insure deposits. If the FDIC runs out of money, the Treasury will have to pony up more money. There are estimates that the FDIC may need another $150 billion to provide money to consumers with deposits at banks that will fail over the next year or two.