Critics of the piece — and there were plenty, because we went against the conventional wisdom of the bailout being a financial disaster — seized on the absence of detail to assert that we’d simply made up the numbers, and that we were financial illiterates, shills for the plutocracy, in President Obama’s pocket or some combination of the above.
So now, we’re going to go into some of the details we left on the cutting-room floor.
The best summary of the supposed flaws in our article is a critique distributed last week by Bob Eisenbeis, chief monetary economist for Cumberland Advisors, who also sent it to Fortune as a letter to the editor. We’ve posted Bob’s piece and my response, which is a revised and de-jargonized version of the response that I sent to some financial sites that published Bob.
As an aside, I appreciate Bob’s civility, even though I think his numbers and analysis are badly flawed, just as he thinks mine are.
When Fortune’s editor, Andy Serwer, told me to write an article about how much the bailout cost taxpayers, I had to decide what the bailout consisted of, and what the costs and revenue from it were to taxpayers. My colleague Doris helped me gather information and fact-checked the numbers and as many assumptions as she could, but the analysis is mine.
I decided the only way to get useful numbers was to use cash: the government’s bailout outlays, less the cash it’s gotten (and is almost certain to get) from guarantee fees, selling securities it got in the process of bailing out borrowers and debt issuers, and — the most controversial part — the payments to the Treasury by the Federal Reserve of profits the Fed has made from its role in the bailout. Those bailout-related profits aren’t separated out on the Fed’s financial report — I estimated that by comparing the Fed’s pre-crisis annual payments to the Treasury for 2003 through 2006 with the payments from 2007 through 2010.
Doris and I were calculating the cash costs of the bailout to taxpayers. Repeat, cash. C-A-S-H. Not moral hazards. Not risk-adjusted dollars. We thought that it was obvious that we were measuring cash rather than using fancy metrics. We weren’t including costs or benefits from the Fed bailout programs debasing the dollar or hurting prudent savers by keeping interest rates ultra low or possibly setting the stage for future inflation. We weren’t including the job-creation benefits created by the cheaper dollar presumably reducing imports and increasing exports, or the benefits of not seeing every major U.S. financial institution fail, and of not having companies heavily dependent on short-term loans (which had dried up in the market panic) miss payrolls or go out of business. Who’s got objective, reliable, challenge-proof numbers for these things? Not us, not anyone.