Monday, September 29, 2008

Bailout thought of the day

On my ride into work this morning, I began thinking about the $700 billion bailout a lot and what a huge chunk of money that is.
During the arguments about "free" trade and the trade deficit, many of us compared the amount of money the trade deficit was, to the amount of money that could be put into a home. For example, if the trade deficit annually was $100 billion dollars, that is the same as sending 1 million modestly-built $100,000 homes overseas per year. It is a giant transfer of wealth from America to other countries.
So, let's look at the $700 billion plan in the same way, considering what it would be in mortgages. Let's say that all the default foreclosures were $100,000 in debt. $700 billion would pay off the $100,000 debt of 7 million people. When you take $700 billion and divide it by $200,000, probably closer to an average mortgage, you get 3.5 million. If you take that figure and divide it by $300,000, you get 2.3-plus million.
Question: Does anyone out there now exactly how many mortgages are at default from ordinary folks, not speculators? I bet it isn't 7 million people. Maybe it is.
Second question: Why are we bailing out the banks when we could be bailing out Americans? Wouldn't it be better to bail out Americans with with failed mortgages and give them a chance to pay the country back over a longer period of time? They would get to keep the homes, stabilize neighborhoods, and get back on their feet. Since the fed caused this problem - by raising interest rates to stop inflation back in 2004 and 2005 when there was no inflation - why are we bailing them out? The question then becomes, what do you do for the folks who have no problems or are just scraping by but don't go into default? You are essentially punishing folks who succeed by putting debt on them which they will have to pay to bail out the default mortgages. My kids didn't have anything to do with that but they will be paying it.
So, better to not do anything at all and let the market correct itself. The bailout does nothing but reward all the people who ripped folks off. That is why it must be defeated.

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