President Bush asked for a little money today. Here are some ways to put that into perspective. I use the very handy data from the census bureau for these calculations.
- He recommends spending ~$2300 for every person in the United States.
- According to the census, there are about 33 million Americans earning less than $50K per year with mortgages. Assuming a 10% default rate (this is huge) and an average $92,000 mortgage, we could cover all defaulted loans for $303Billion.
- There are 6,450,000 Americans living below the poverty and holding mortgages. Their median mortgage (sorry, I don’t have the average) is $21,390. We could roughly pay off all of these people’s homes for only $137Billion.
Yea, didn’t you know that in Washington the laws of math and analysis don’t work the same as they do for you and I.
So, who is at fault here? The Community Reinvestment Act? Congress? Or the greedy bankers? Or the current and previous presidents?
And what got us here? I keep hearing about oversight and regulations, but I don’t hear what the core problem is and how to fix that first.
This is a complex topic, so I don’t claim to have an answer. I just thought the stats were interesting. They’re probably reasonably inaccurate.
I’ve contacted my Senators and recommended that they approve a reduced version of the current proposal. Democrats want to react, because they are too chicken to ride this out in an election year. Since they are going to spend *something*, I see no reason to spend $700B all at once. Spend $250 now, and then more if needed. This gets them past the initial “we have to do something” with only 1/3rd the complication. Maybe an even lower number would be more appropriate.
I’m not sure 10% is really that huge. There are big cities in our state with double-digit foreclosure rates (e.g., Stockton).
I’m in favor of the some now, some later plan. Keeps those spending the initial amount in check, because they’ll know they have to make it count to get the rest. It also allows for the plan to be modified based on early results.
What’s not clear to me is where the money will actually come from. This isn’t spending taxpayer money. We run a deficit, so there isn’t any taxpayer money to spend. We need to borrow $700,000,00 (or whatever the bailout total becomes) or print it. Borrowing may be difficult and it means we’ll be spending far more because of the interest we’ll incur. Printing will likely lead to massive inflation for years to come.
An interesting (though probably legally difficult) approach would be to let people renegotiate their mortgages so that they can afford to keep paying them. While it doesn’t get the bad mortgage-backed securities completely off the investors’ books, it does turn them from a total loss into something slightly better. It keeps people in homes, which probably improves their chances of keeping their jobs. It also means property taxes will continue to be paid, which helps municipal, county, and state governments from sinking. (Now, banks which have foreclosed on properties are walking away so they’re not on the hook for the property taxes.)
So what does $700,000,000,000 look like
Just had a thought about trying to get my head around the huge sums of cash the US want to spend to bailout the economy and so over my morning coffee armed with a BIGBOY calculator I came up with this. If you placed a $1 note end to end, Each Dollar bill measuring 6.4 inches long it would take 9900 of those dollars for every mile. If you then placed 700,000,000,000, dollars end to end it would span a distance of 70,707, 070.7 miles long that’s over SEVENTY MILLION SEVEN HUNDRED thousand miles. That’s a money line that could rap around the world 2996 times or if you had traveled into space on Aug. 27 2007, Mars was 34.65 million miles away so the line of dollar bills could have reached Mars and back.
Now that’s big cash..