You won't believe where that $700-billion bailout figure came from

Here's something that John McCain and Barack Obama and Sarah Palin and even longtime Washingtonian Joe Biden probably don't know. Not to mention Bob Barr, Ralph Nader and Ron Paul, who usually knows everything.

It's a fascinating footnote to the economic and political bailout debate that's kept so many people from more properly focusing on the pennant races and the Colts' problems in the last week. (Incidentally, do you think we'd have had this big fight if President Bush had called it a "rescue" plan instead?)

Our buddy from two lifetimes ago, Carl Lavin over at Forbes.com, points out a fascinating paragraph buried in a story on his website late last week by Brian Wingfield and Josh Zumbrun.

You know, this $700-billion figure that exploded into everyday political parlance almost as fast as Sarah?

The $700-billion "cost" of resolving the financial crisis and restoring confidence and liquidity in the credit markets starting this morning?

The $700-billion figure that Senate Democratic Majority Leader Harry Reid first said he could really use McCain's help with, but then the Arizonan took him up on it and Reid suddenly said the Republican would only get in the way and anyway, Reid said, he already had a done deal, except he didn't and the Nevadan ended up being the embarrassed one?

The $700-billion figure that dominated the first part of the first presidential debate of the 2008 general election season between McCain and Obama?

The $700-billion figure that won't really end up being anywhere near the actual cost because no one knows what all those mortgaged properties are really worth now anyway? Which is the whole problem in the first place because the institutions holding that paper don't know the value of what they're holding either, which is why everyone suddenly got so frightened?

That $700-billion figure that won't really last because eventually the feds will sell off what they're buying and might even make a profit in the end as they did with the Chrysler bailout warrants years ago?

You know where that very important $700-billion figure came from?

Here's a quote from that Forbes story:

"It's not based on any particular data point," a Treasury spokeswoman told Forbes.com Tuesday. "We just wanted to choose a really large number."

They made it up to be sufficiently ginormous to frighten everyone into rapid action.

And it worked.

--Andrew Malcolm

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Photo credit: U.S. Treasury Department

Comments

[Liberty Girl]

If this weren't so serious, this fact would be hysterically funny. In light of the situation, it is frightening. It like we are lambs being led toward slaughter and Democrats are so complicit they think they are SAVING us from ourselves. They forget in the end they too will be consummed by it all. God help us...

[Kyle]

None of these people currently in government deserve to be there. It's time to throw these bums out.

Obama-Biden 2008!

[Steve Z]

So somebody pulled a big number out of his rear end, and the media ran with it. A tribute to their intelligence!

Oh, by the way, thanks to Rep. Boehner and the House Republicans, we start with "only" $250 billion and increase from there only if Congress agrees later on. Taxpayers might want to send him a thank-you note!

[jean]

What the Democratic Congress has done to this Nation especially in the last two years is terrible. The Democrats want us to believe this is Bush's Bill, no, it was conceived in the minds of the Democratic to help elect Obama because he is supposedly an expert on the economic.
The Democrats did stop to realize this affect all Americans, not just Republican.
I I have read and listened to all kinds of experts, and I don't think this is the way to go, espeically when we are told more moneis will be needed.

[Joe]

You have admitted that there is no way to estimate exactly what the assets are worth, so there is no "actual" cost to the program. The Treasury is not spending $700 billion in cash. they are being given the authority to borrow that much.

If you think that number is too high, or that the problem is exaggerated, by all means tell us what you think it will take to avoid financial meltdown.

The fact is you don't really have a clue. "Covering" the news, your profession, gives you expertise in finance or economics, so please tell us based on what expertise you think this does not make sense.

[bob]

It "is" hysterically funny, just not funny ha ha. Funny as in how the Bush admin. was again able to frighten (blackmail) the People into submission in order to bail out his wall street consigliere.

If you don't like being a lamb led toward slaughter then stop being a sheep, vote for change.

[Bob Smtih]

Andrew, there is nothing you know that Ron Paul doesn't already know.

[w00t]

"They forget in the end they too will be consummed by it all."

Really not. They have money, they are over everything, rule everything, behind your back. You really think this crisis is accidental?

[Joe K.]

This 'journalism' is rather disingenuous. The hearing last week had both Paulson and Bernanke saying the figure was about 5% of the 14 trillion dollar housing market, what they estimate to be the number of 'toxic' debts.

They may not have a certain math formula for that % being deemed the estimate on bad debts, but it's at least not as filppant as you suggest 'pulling it out of the air'.

[Mike]

This blog is worthless. Yes, investors are having a hard time estimating fair maket values and yes it's being labled the "$700 bailout plan." However, do you honestly think they're going to drop 700 billion down because they wanted to make sure it was enough? That's why it's a PLAN, not the cost or "figure." Obviously, that's what is being debated, where the money is going and under what circumstances. $700 billion is just the MOST that will be invested, not how MUCH.

[NotBuyingIt]

This story BABBLES like a Sarah Palin answer. Hello, Sarah, is that you behind this article? Obviously a like scatterbrain. Try *complete* sentences next time.

[steve rodriguez]

Nancy Pelosi is a true American idiot!!!!

[MKS]

There are, I understand, about 51 million mortgages currently held in the U.S., of which about 3% are in trouble. Let us suppose that the average mortgage is $300,000 and also suppose the worst case - the entire mortgage is a loss, and the property it is on is worthless. This computes to (51,000,000)(0.03)(300,000) = $459 billion. So I wondered, "Why $700 billion?" Then I heard about the $100 billion for ACORN. That is probably just one major beneficary in this transfer of wealth away from the taxpayers.

[Frank Borelli]

So, my question still remains: Is there REALLY a HUGE financial crisis? Or is the BIG problem the fact that a bunch of fat cat CEOs don't really know how much money the companies they lead are worth and THAT'S what's causing the meltdown? How about the fact that real estate has been artificially inflated for the past 7 years and is now returning to more realistic numbers? Ever wonder why there was such a big difference between the APPRAISED value of a property and the ASSESSED value of a property? There's a part of me that WANTS to see this bailout fail just so the fat cats lose their shirts. And remember this because it is of utmost importance: the government never spends its own money: ONLY OUR TAX DOLLARS.

[antibanki]

I think its time that we round up all the bankers and throw them in a camp somewhere - after taking every penny from them and their entire extended families. These vermin who claim to be such geniuses that we should entrust them with our money, happily stuffed their pockets with the profits they earned and now have the gall to ask us the taxpayer to bail them out?

Time to get out the tar and feathers!

[george in toronto]

One sure cure in fixing the rich--no income taxes deferment of stock gains and no dedictions in stock losses.That is how most rich get away in not paying taxes.
All Income tax returns be made public on the internet.Now that will surely fix sick America.

[Evil Otto]

"None of these people currently in government deserve to be there. It's time to throw these bums out.

Obama-Biden 2008!"

Umm... Kyle... buddy... Obama and Biden are both currently in government. Unless the Senate declared independence and split from the Union while I was on vacation, and I missed it.

[KC in CA]

Liberty Girl: What are you talking about? McCain, Obama and Biden are ALL in the same government. They're our Senators. They're the bums you wanted to thrown out.

[Chromium]

Evil Otto:

Not only are Obama and Biden still in government, but the BDS sufferer's target leaves office in January no matter what...

[Shauna Nicholson]

That's incredible. The Twitter world is all abuzz with all things economy lately, which has been an interesting shift from "all things presidential candidates."

It's hard to say that this is surprising; regardless, I'm glad the "tactic" was effective.

[Kelly]

Go Evil Otto!! That was GREAT!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

[kevin]

so let's see......houses are too expensive ,but all our money is invested in these houses because of our love affair with sub-prime mortgages and other unfortunate events, now if we let the price of houses fall well we're out alot of money so let's scare the government(taxpayers) into taking the losses and we'll take the gains!!!not to mention that inflation would rise even more ....and who notices that oil will bottom out and probably be the cheapest ever if we don't bail these mofo's out...the market has risk!! THIS IS AMERICA DAMMIT, I'M ONLY 22 AND I GET IT ...THIS IS VERY SIMILAR TO THE DEPRESSION WHERE PRICE SETTING MADE EVERYTHING WORSE AND ITS HAPPENING AGAIN

[Charles D]

Call me cynical, but I'd like to know how many of those House Republicans are buying up stocks ( directly or indirectly ) at these fire sale prices.

[Doug]

Hmm, so the decline the bailout ("rescue plan"). Oil futures are down over $10 on the day and the dollar is up because we dont have to borrow up to 700 billion now.

Everything sounds good to me so far, I say lets have this thing work out with free markets and let the strong survive as it should be.

Two quotes ive heard that really explain the last couple of weeks:

"If a company is too big to fail, then its too big to exist."

"Where I come from, we arrest criminals, we dont bail them out."

[coolbreezei]

700b is supposed to be 5% of outstanding mortgages. They figure a 5% foreclosure rate.