Standard & Poor's said the potential bill to U.S. taxpayers for bailing out Wall Street firms could grow to $400 billion. If Fannie Mae and Freddie Mac are included, the bill could soar by an additional $1.4 trillion, for a total of $1.8 trillion, causing the U.S. government to loose its AAA rating and plunging the country into a deep and prolonged recession.
S&P said it would cost up to 10% of the economy's $14 trillion annual output, or $1.4 trillion, to rescue the credit agencies, including the Federal Home Loan Banks.
By comparison, it would cost less than 3% of output, or $420 billion, to assist failed brokerages.
Critics have questioned why the government is open to such liabilities, while at the same time starting another round of brokerage risk taking.
"Leveraged speculators need to know that it is not heads they win, tails the taxpayers lose,'" Peter Schiff, president of Euro Pacific Capital, told The Washington Times. "By bailing out lenders who extend excessive credit, the Fed simply invites more of that behavior.
"Wall Street executives amassed fortunes by making extremely risky bets," he added. "Now that those bets have soured, why is it taxpayers that have to swallow the losses?"
(c) 2008 Money Management Executive and SourceMedia, Inc. All Rights Reserved.