There is an “official” government bailout number. That is the $700 billion Congress gave to Henry Paulson to hand out as he pleases. Most of it will go into buying equity in banks and taking their toxic loans. If securities analysts are to be believed, this will not be enough capital. Firms like Citigroup could lose money for another year or more. It the Paulson plan was such a hot item, Citi would not be trading at $13, just above its 52-week low.

Paulson, or the person who takes his job, will have to come up with more cash for banks. Mortgage failures are running up at such a rapid rate the derivatives tied to the markets are in for more trouble. Investment banking revenue is all but gone. The lending done for credit cards and car loans has hit trouble as well.

But, banking may be the least of it. AIG’s (AIG) new CEO, who probably wishes he had never seen the job, mentioned that the $123 billion the government has put up to help his insurance company will not be enough even if the firm cuts back on all of its fun outings. AIG has already gone through $90 billion in record time. Its chief executive believes it will need more collateral while it tries to sell some of its healthy divisions to raise cash. The credit markets are so tight that making those sales may be especially hard. The federal government’s argument for putting capital into AIG was that it was “too big to fail.” It is hard to see how that logic has changed in a month. The AIG problem could become at $200 billion fairly fast.

The way the government looks at the bailout does not include the Fed’s so-called “emergency window” where banks and brokerages come to trade in worthless paper for real cash. The Fed says that facility is hit to the tune of over $300 billion on some days. That money is in the form of short-term, low interest loans. What happens on the day that one of the borrowers cannot pay the money back?

On top of these sums there are the $25 billion in loan guarantees for the US auto companies. Those are mainly guarantees, but if any of the Big Three defaults, the government gets to make good.  A look at the GM (GM) balance sheet might put the odds of trouble paying the note at 50/50. The auto companies, especially GM and Chrysler, have sent Michigan congressmen back to Washington to ask for capital to support a merger of the two companies. That would mean that the Federal Reserve would have to supply money to cover severance costs of the 60,000 people who would be let go in a combination. The governors would have to be ambivalent about that, but letting the auto industry fail hardly seems like a good idea.

On paper, and probably in the real world, the amount of the bailout of US banks, mortgage-holders, insurance companies, car companies, and the local Piggly Wiggly adds up to substantially more than $700 billion. It certainly tops $1 trillion. If most of the things the government has already committed to in one form or another get funded, it is a $2 trillion bailout.

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Douglas A. McIntyre

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