Bailout Critic: Plan Could Cost $3 Trillion

Even some who believe in the bailout say it will cost more than $700 billion.

ByABC News
October 13, 2008, 1:11 PM

Oct. 13, 2008 — -- The U.S. government is changing its approach to the financial crisis, and that change seems to be coming straight from the playbook of U.K. Prime Minister Gordon Brown. Last week Brown unveiled an $87 billion plan to inject money into British banks. In return, the British government will receive shares in those banks.

Critics like Barry Ritholtz said it's about time the U.S. got onboard, even though he warns it could cost up to $3 trillion. spoke with Ritholtz, the author of "Bailout Nation: How Easy Money Corrupted Wall Street and Shook the World Economy" and the CEO of the institutional research firm Fusion IQ, to hear more about his thoughts on the federal government's rescue efforts.

Q: Has the United States fallen behind the United Kingdom in its effort to solve the financial crisis?

A: The U.S. really seems to be flailing about. There's a very famous Winston Churchill quote that says the United States will do the right thing after it exhausts all other possibilities, and it's really true. We've sort of meandered from one half-assed idea to another to another and it's just far too much kicking around. ... It's not a problem of confidence, it's not a problem of falling house prices.

The most fundamental underlying problem is that banks are undercapitalized. This is at a corporate, governance, structural level. I don't mean the balance sheets, I don't mean how much money they have in their trading accounts, I mean on a fundamental basis of shareholders' equity versus liability. They don't have enough cash. They don't have enough capital. The way you get enough capital in these situations is what Warren Buffett did with GE and Goldman Sachs, and it's what the Swedes did during their crisis in the '90s and it is what Gordon Brown has proposed last week.

I don't care if you're a Republican or a Democrat. You have to be disappointed in the lack of leadership from the White House. I mean, the president's been pretty much AWOL. He's been letting his Treasury secretary and the Federal Reserve run this. This is a systemic crisis that calls for leadership from the highest levels in government. … I just get the sense that these guys are trying to run out the clock. They're sitting this out. They're back-benching and saying, 'Hank, Ben you guys run it, we're not going to be involved.' It's just so bizarre to me. These are the sort of crises that you want to see the president step up.