The government's proposed rescue of limping financial companies could cost $1 trillion, or $300 billion more than the price proposed by the Bush administration, Zions Bancorp. Executive Vice President George Feiger said Wednesday.
Feiger made his comments in a speech to an invitation-only group at Eaglewood Golf Course Reception Center in North Salt Lake.
The bailout proposal is not about CEO salaries, nor is it money being given away, as Feiger sees it. Rather, it's money that's being used to end a financial "spiral of doom," and the plan could end up paying the taxpayer back.
"I'm convinced there's not going to be any large losses in this" plan, said Feiger, CEO of Contango Capital Advisors based in Berkeley, Calif.
"Money is not being lost, it's being used," he said. "It's the price to buy the stuff."
Just how much the stuff will be worth in a few years is the question. The economic system is saturated with debt from consumers and corporations, Feiger said. The global economy is slowing. Borrowers are defaulting on loans. Financial companies have little equity, huge invisible obligations and highly volatile asset prices, and some are collapsing.
The federal government has given billions of dollars to prop up insurance company American International Group Inc. and mortgage finance companies Fannie Mae and Freddie Mac. Wall Street giant Lehman Brothers filed for bankruptcy, and Merrill Lynch was purchased by Bank of America. The stock market last week plunged, then rallied upon news Congress and Bush administration are working to hammer out a historic rescue of the financial industry.
The plan essentially would use tax dollars to buy financial firms' toxic debt to keep them from going under and ultimately stave off a severe recession, accompanying job losses and further home foreclosures.
The Bush administration last weekend announced that the rescue, the largest since the Great Depression, would cost $700 billion. CEO compensation on Wednesday was to be limited for those in companies benefiting from any bailout. Some Democrats were working to bring the pricetag to the $200 billion level.
But Feiger, former associate professor of finance at Stanford University's Graduate School of Business, says the issue isn't about CEO compensation.
"It's the heart of the financial system that's collapsing. This is the absolutely critical issue that faces us today."
The way things are now, losses will well exceed $700 billion and be shared largely by banks and investors, Feiger said. Households will take a huge hit, with shrunken home values, stock market losses and lowering of household net worth.
If the government buys up the bad debt, who knows what that investment could be worth down the road.
As for consumers, Feiger advised: Don't sell anything not your car, house or stocks."Have a strong stomach," Feiger said. "Everything you sell now you will sell below its intrinsic value." Instead, he said, diversify and be prepared for two years of extreme volatility.