The most dangerous consequence of federal bailouts is growing market anxiety about an eventual Treasury default, raising the specter of potentially fatal damage to the credit of the U.S. Treasury. “Including the Fed’s commitment yesterday to buy $1.15 trillion in additional bonds, the U.S. government has now spent, loaned, guaranteed or committed an astronomical sum of $12.7 trillion in an all-out attempt to bail out failing companies, save Wall Street from a financial meltdown, and prevent an economic disaster,” said Dr. Weiss. “Yet, despite these Herculean efforts, American households have already lost $12.9 trillion in wealth, millions are losing their jobs, and, despite short-lived stock market rallies, the economy is sinking into a depression.” The debt crisis is much greater than the government has reported, according to the white paper. The FDIC’s “Problem List” of troubled banks includes 252 institutions with assets of $159 billion. An analysis by Weiss Research, however, shows that a total of 1,568 banks and thrifts are at risk of failure with assets of $2.32 trillion due to weak capital, asset quality, earnings and other factors. In addition, four large U.S. banks have credit exposure related to their derivatives trading that exceeds their capital, with two in particular — Citigroup and JPMorgan Chase — taking especially large risks.
Will bailouts lead to U.S. Treasury default?
From a March 19 Weiss Research press release:
