### Understanding \$700,000,000,000.00

Look at that number. It's amazing. Yet to hear our leaders talk about it, they need every penny to prop up the mortgage lenders. They don't. And I figured out how to put it in terms anyone can understand:.

At first, I saw that number and I had to ask... How many bad mortgages are there? Then after playing with that hypothetical in my head I wondered, how many mortgages are there in active in the whole country? So I looked it up. According to this 2006 pdf from the U.S. Census, there are 33 million owner occupied dwellings with first mortgages active. (1)

Hmmm 700,000,000,000 / 33,000,000 = Over \$21,000 cash the government could just give to everyone with a mortgage! What kind of stimulus would that have on the economy to hand 33 million people \$21,000?

But then I took it to the next level... On page 174 of the pdf (page 158 of the doc) I found an interesting table. (2)

Click for full size.

I put the highlighted numbers into a spreadsheet to figure out just how many mortgages \$700 Billion could retire if they gave the money (back) to the people. I got this.(3)

The Bottom Line: If the Treasury simply took the \$700 Billion and started paying off taxpayer mortgages, they could pay off every mortgage in the country worth less than \$75,000... Or put another way, \$700 Billion could pay off well over half of all outstanding first mortgages in the entire country.

Do you really think they need this much money?

So I say we just take the cash and pay off half the mortgages out there and see what that does to the credit market and the economy. Are ya with me?

(1) Excluding Home Equity Lines of Credit and Second Mortgages. (2) Reformatted a bit for readability. (3) Used Averages of payouts so \$10,000 - \$20,000 I used \$15,000 also used half # of mortgages (cell B:9) in \$75K range to represent average.

I don't think you understan... (Below threshold)

I don't think you understand what the bailout money is for. All types of credit are getting harder to come by, not just mortgages. The \$700 billion is meant to shore up the whole credit market not just the poorly performing mortgage backed securities.

So, we've got to shore up t... (Below threshold)
JLawson:

So, we've got to shore up the credit market so people with lousy or nonexistant credit can keep getting loans that they're not going to pay back?

Doesn't that seem a trifle... counterproductive?

So, we've got to s... (Below threshold)
So, we've got to shore up the credit market so people with lousy or nonexistant credit can keep getting loans that they're not going to pay back?

Nope, we've got to shore up the credit market so businesses can get overnight loans to cover their inventory purchases and payroll. This crisis may have started with mortgage backed securities but it spread to the commercial paper market, money market funds, and the commercial lending market. Those problems are what this bailout is suppose to fix. If credit dries up even more than it has the economy will sink like a stone. That would be bad.

There is no credit freeze. ... (Below threshold)
WildWillie:

There is no credit freeze. Only on people and businesses with poor credit scores. Try another argument. ww

Here's the question(s) I ha... (Below threshold)

Here's the question(s) I haven't seen answered:

Where's the column for the failing/failed mortgages by amount that we're talking about shoring up? Are they weighted on the top or the bottom row? And are they occupied by the owner of the mortgage?

Well, heck, if we are just ... (Below threshold)
Mycroft:

Well, heck, if we are just going to pay off mortgages, then let's just issue a blanket check to everyone in the country and let them pay off as much of their own mortgage as they want.

Or how about we pay half the mortgage of people til the money runs out? Then the money might make it up to people with 150,000\$ mortgages. I certainly could use half my mortgage payed off. I promise to keep paying at the same rate until the other half is payed off too.

The one aspect of this pla... (Below threshold)
hcddbz:

The one aspect of this plan I like is looking at directly look at the mortgagees. Which the current plan did not do. The root of the issue is the sub prime mortgages so they need to be addressed.

The number of sub prime mortgages in trouble is 300,000 of which 38% are in default so that is 114,000.

Om the old days when it took 10 to 15 years for a house to appreciate in value an investment of 50K would be 200K by the end 30 years. however in the housing boom times this was happening in 4-5 years.

Since these rates are securities no one knows how much there worth is it 300,000 @ 50K, 100K, 500K what happens if we have more failures?

What happens to the people living in these homes? If they cannot meet there obligations now, how ill they meet them in the future? If the government takes over the homes and they stay vacant then the lose value. If the government just gives people housing it gets destroyed ask land lords of section 8.

If government takes the homes and then finds A-plus then we could make money. However how many taxes sales happen ever year? the government sucks at real-estate (failure of Fanny and Freddie)

I don't think there any easy answers but we need to address the root problem.
Then we need find those who broke existing laws from buyers who committed fraud by lying about income , real-estate and mortgages company that did illegal practices and members of congress who looked the other way because they got money from fanny and freddie and investment and commercial banks that did not disclose there level of risk.

The press is doing such an ... (Below threshold)

Blue Neponset:I op... (Below threshold)
wbgonne:

Blue Neponset:

I oppose the bailout and have since its announcement. I have yet to see or hear any concrete proof of an impending economic catastrophe, just the typical sky is falling fearmongering. You say that there will be a credit freeze. Well, so what. The credit markets and the banking system are bloated and the U.S. has been living on borrowed money (foreign, mostly) for far too long: the economy was headed for a heart attack. I am not saying that there will not be short-term, maybe even longer term, pain; but that is HOW the markets correct. I simply do not believe that people will not lend other people money if there is money to be made doing so. If the risks of lending the money are high, then the money will be lent at higher rates. If the borrower (the U.S., banks, individuals, companies) presents a prohibitive risk, then no one will lend him or it money; but that is how it is supposed to work. Bottom line: I simply do not believe that the credit system will collapse. It will, however, correct. That is what free markets are about.

Wild Willy,You are... (Below threshold)
Imhotep:

Wild Willy,

You are as wrong as wrong can be.

There are business's that can NOT get the loans they need to stay solvent. This has nothing to do with THEIR credit; but the FACT that other's credit has pinched the market so that the banks that USED to loan money no longer do so.

The GLOBAL ECONOMY is going to correct; hang on for more than just the 7 to 10% of the U.S. Market.

It is not just the U.S. housing market that is affected by this massive screw up.

Small companies can not get the easy loans they used to get and this will tighten the economy more than you expect.

"Since these rates are ... (Below threshold)
marc:

"Since these rates are securities no one knows how much there worth is it 300,000 @ 50K, 100K, 500K what happens if we have more failures?"

That statement encapsulates my problem with the bill.

When John Q. Fed walks in to buy a passel of bad mortgages from a bank what the hell is he going to pay?

Will it be the highly inflated price attained during the bubble and likely when the loan was made and led to it being in default?

Or will it be somewhere in the middle price range or the bottom figure where there is some hope of turning a profit in the future?

I have zero faith some bureaucrat will give enough of a rat ass to care and even attempt to do the right thing.

Secretary of the Treasury W... (Below threshold)
JFO:

Secretary of the Treasury WannaBe WW sums up the problem in 1 cogent sentences. Bravo WW.

Blue Neponset -One... (Below threshold)
JLawson:

Blue Neponset -

One big problem I've got with this is that it's very much NOT transparent and clear that that's where the money would end up. And if the 'leadership' of the House couldn't get enough Democrats to pass this - which they could have, but they needed Republicans for cover and not enough of them went along - then I seriously question the need for this bill, right now.

Another problem I've got with it is the rush, the need to "do something right now, right now, don't question, don't think, we've got to act right now or we're all DOOOOOOOMED!" mentality that's pushing this. Last time I was treated to this sort of rush to spend money, I was at a used car lot looking at a lemon.

So forgive my skepticism, from where I sit this looks like a financial coup, not something that'll benefit the country in the long run. Your mileage, of course, may vary.

wbgonne - I might ... (Below threshold)
JLawson:

wbgonne -

I might not agree with you on much, but I agree with you here. The banks are capable of judging who is credit worthy - and who isn't. They'll find the money for those who need a loan and can prove worthy of it.

This hard push to pass the bill doesn't make much sense at all - if the media hasn't explained clearly why it's needed, then perhaps it isn't needed in the first place.

I think the \$700,000,000,00... (Below threshold)

I think the \$700,000,000,000 scopes the size of the problem, and isn't just an automatic turnover of that amount (though when gov't gets involved you never know). There are assets associated with the takeovers that could be worth. \$0, \$300 billion, or \$600 billion, or even eventually more than \$700 billion.

Whatever the deal becomes it would likely become another source of revenue for gov't 'special' projects for both parties.

I still have no strong opinion about whether the bailout is needed or not.

I am from Alberta, Canada a... (Below threshold)
Merle Underwood:

I am from Alberta, Canada and a steady reader on SDAs blog site. I have sure learned a lot from reading the commenter's, "more than from any MSM sites that I read". I agree with JLawson that the we are all doomed line if something is not done right now. They are the used car saleman and I think the Citizens are going to put them in their place.
Great post.

No, I am not with you. If w... (Below threshold)
A Stoner:

No, I am not with you. If we are going to do anything, what we should do is put money in the hands of the main street financers directly, instead of directly. Companies that are in good shape today should be given enough money to offset the losses at the big companies. Let those companies fail, and be repurchased at firesales.

The problem is Mark to Mark... (Below threshold)
Larry:

The problem is Mark to Market, which devalues assets to zero if nobody wants to buy them. You can own a bundle of mortgages that should be worth a hundred billion, but because of accounting rules are worth zero. If you are forced to write down your assets by 100 billion, then you can't lend money.

The key component of the bail out plan was in the details; change mark to market and back it up with an onerous buyout if nobody else would buy the mortgage security. We need mark to market for the most part to keep thieves from manipulating the value of assets. But in a complex situation where the value is artificially lowered to zero, we get in trouble.

The problem, however, does ... (Below threshold)
Don:

The problem, however, does not lie with the responsible people with \$75,000 and under mortgages. It's with the idiots who if they ever discovered they only owed 75k on their home would re-mortgage it the next day and blow their hundreds of thousands on a higher standard of living they can't sustain.

But, your plan would be the best one ever...reward financially responsible people rather then financially irresponsible people. I'm all for it! Pay off all 75k and under mortgages!!!

Oh, lovely idea! Now those... (Below threshold)

Oh, lovely idea! Now those of us who have been saving our hard-earned money for the last several years because we didn't want to do anything stoopid like take on a mortgage with tiny downpayments and huge interest rates can sit back and watch the government pay off the mortgages of those who took on obligations they couldn't meet. Count me in! I love seeing my tax money reward deadbeats and line jumpers!

Banks want the government b... (Below threshold)
syn:

Banks want the government bailout so that the banks can sell their junk to the government at 30, 40, or whatever cents on the dollar instead of 10 cents on the dollar they would get under normal situations; this is why the banks are freezing the credit market so they can blackmail the goverment into buying their junk paper.

Paulson is looking out for his blackmailing banking friends, not mainstreet Americans.

Gee the bailout is so necessary that Congress took a two day holiday before they'll regroup to legislate the bailout?

A few months back, I read i... (Below threshold)
GianiD:

A few months back, I read in an industry journal that 2 out of 3 serious delinquencies, a precursor to foreclosure , weren't primary residences. How come the media isnt reporting this?

Also, commercial paper these days is readily available, for those that have good credit. Mortgage money is available, for those that have good credit.

Best article Ive read on this whole issue was back in December, from a prof at Grove City College, think it was title Anatomy of a Financial Crisis. American Thinker has a great read today on Accounting methods.

Cant understand though why the media isnt reporting all Dim attempts to block oversight of Fannie/Freddie.

marc, some private enterpri... (Below threshold)

marc, some private enterprises are already buying up the bad ones at discount rates; without government intrusion. Citi just took over Wachovia. One might say that Citi was already on shaky ground, but they gained some capital by selling off some of their own low performing, mis-managed subsidiaries such as CitiStreet.

CitiStreet was an IT company and had no role in banking or lending. They were recently bought by ING. Now ING has started getting rid of the problem management personnel. Previously, CitiStreet thought the answer to their problems was to fire low-level employees in droves to save money when the problem was with management. I had all the inside skinny on that because my husband worked for CitiStreet and now works for ING.

Anyhow, Citi recently bought some good mortgages from other companies. One of those is my mortgage. We're one of their good assets. They're pretty confident that the bad loans they acquire from Wachovia can be easily offset by the smarter moves they've made lately.

And again, all without government intrusion. So I think that government can play a much smaller role to solve this problem than they're making out. Instead of focusing solely on government buy-outs they need to rely more on private enterprise taking a role in the fix and do what governments should do and regulate in a way that levels the playing field.

Just as an aside, anyone who is interested in their own bank's rating in the midst of this can go to bankrate.com.

Why doesn't Hank Paulson ex... (Below threshold)
Therese:

Why doesn't Hank Paulson explain why other alternatives won't work? I don't understand why there's been a refusal to look at other options without at least saying why these other options won't solve the crisis. Moving full steam ahead with just one solution looks suspicious.

What kind of stimulus wo... (Below threshold)
mantis:

What kind of stimulus would that have on the economy to hand 33 million people \$21,000?

Ooh, I know the answer to that one!

ultimately, what the bailout does is help those who are concerned about the health care reform that is needed to help shore up our economy. Um, helping, oh, it's got to be about job creation, too. Shoring up our economy, and putting it back on the right track. So health care reform and reducing taxes and reining in spending has got to accompany tax reductions, and tax relief for Americans, and trade -- we have got to see trade as opportunity, not as, uh, competitive, um, scary thing, but one in five jobs created in the trade sector today. We've got to look at that as more opportunity. All of those things under the umbrella of job creation.

But seriously folks, no dea... (Below threshold)
mantis:

But seriously folks, no deal. This boondoggle is simply a way to transfer money from taxpayers to financial institutions that engaged in foolishly risky behavior. It is giving them a big fat reward for their mistakes. The bailout money will largely go towards mortgage-backed securities, not mortgages, and many of these securities are worth nothing and will not increase in value, as firms overlapped claims on mortgages, and the main holders are hedge funds. Let them fail.

If the government wants to pump money in, let them purchase only claims that are tied to mortgages directly, on a small scale (less than \$100 billion). Let the mortgage-backed security funds and institutions fail or be bought out. They are bullshit anyway, they don't deserve to live, and they certainly shouldn't be purchased by the taxpayer.

I find myself in a weird position of agreeing with House Republicans with whom I disagree on most everything else, but hey, these are weird times.

Amazingly, it seems things ... (Below threshold)

Amazingly, it seems things aren't bad enough yet for some to figure it out. It's actually going to have to get worse.

Re: mark to market - Invest... (Below threshold)

Re: mark to market - Investor's Business Daily ran an opinion piece about how mark to market isn't to blame. It's linked thru my name below, it's a little dense to get thru.

Congrats on the Rush hat ti... (Below threshold)
Jeff Blogworthy:

Congrats on the Rush hat tip! You have truly arrived.

Yup! Rush hat tips Kevin!</... (Below threshold)
The Listkeeper:

Yup! Rush hat tips Kevin!

They shouldn't pay off the ... (Below threshold)
york987:

They shouldn't pay off the lower mortgages, those should default and go away. They should pay off MY mortgage, since I got a responsible loan that I could handle.

Sign me up ... (Below threshold)
Gunit:

Sign me up

Not my opinion. Cavuto, and... (Below threshold)
WildWillie:

Not my opinion. Cavuto, and other business leaders stated there is no credit freeze. Now, is there or isn't there? That is the question. ww

I don't think there's a tot... (Below threshold)
mantis:

I don't think there's a total freeze, but it's certainly chilly.

Kudos (or should I say ditt... (Below threshold)
Margo Demers:

Kudos (or should I say dittoes?) for your numerous mentions on Rush's show today!

From the beginning, the rea... (Below threshold)
SBD :

From the beginning, the reasons for this immediate 700 Billion Bailout was so laughable, I kept cleaning out my ears to make sure I was hearing the words coming out of the TV correctly!!

For instance, have you ever heard of a company needing a loan to make payroll??

Who would work for such a company??

Are they so stupid, that they believe that the way they run the government is the same way private enterprise run their business??

The only entity that could possibly need a loan to pay their payroll is a government entity!!

Yet, every single cable channel spouted this as a reason we were in need of this immediate bailout. Maybe they figured that those who work for a living and own a small business have no time to pay attention, and everyone else just collects a paycheck, so they have no idea how it works!!

SBD

Wow, it's hard to tell who ... (Below threshold)
Jack Burton:

Wow, it's hard to tell who is right and who is wrong, because apparently everyone's an expert. All I know for sure is that my Plymouth Roadrunner is gassed up, machine guns mounted, black post apocalyptic leather wardrobe on my back and I am ready to rock and roll. Bring on the apocalypse.

TWO MEN ENTER. ONE MAN LEAVES.

My brother is a real estate... (Below threshold)
Grace:

My brother is a real estate appraiser (appraises for banks). He was telling me that he had quite a few "customers" who re-appraised more than once as their house values rose. They then, apparently, used that "profit" to go and buy more stuff. If they were using their home as an ATM machine, it is not the banks or wall streets or anybody elses fault now that their home has gone down in value and they are holding and paying for something not worth what it once was.

Unfortunately, some who learned their house values had dropped went into bankruptcy. Again, not the fault of anyone else.

It is sad but true there are many stupid people. Too bad they hadn't learned more about money management in our education system or from their parents so they wouldn't be in the mess they are today.

I am a simple man, 11CP was... (Below threshold)
AxeTracks:

I am a simple man, 11CP was my MOS. Sadly rocket scientists and other Ivy League intelligentsia don't enlist as paratroopers (yes enlist - as in NOT an Officer), my credentials as simple undisputable -smile. Now why would I pay the government (through my hard earned income that is taxed to the hilt) to buy assets that the current owners cannot sell an no one else wants to buy? Why are we even talking about this? Let the value of these assets continue to drop until they reach a value that attracts a buyer? Yes it's a garage sale, so what. And pleeezzzz enough about credit squeeze... money is lent based on risk and return... every sucker with money wants to make a return on it and is got an eagle eye looking for a good investment... pleeeezzzzz stop the BS about no credit.

I think you might be assumi... (Below threshold)
VR:

I think you might be assuming that mortgages under \$75,000 might be "poor people", who are having trouble paying their mortgages. I think that it much more likely that mortgages under \$75,000 are mortgages that are nearly paid off.

These mortgages are not likely to be in default, since the home owners have a lot of equity built up.

To deflate the bubble, I think that you would need to send the checks to every owner occupied home with a mortgage. Trying to target the rich or the poor, or only troubled mortgages just wouldn't work.

I had done some similar calculations, but I came up with nearly 50 million owner occupied homes (with mortgages) and a range of \$14,000 - \$20,000.

I will need to look at the census data that you used. I had used the data from page 1 of the census report at www.census.gov/hhes/www/housing/ahs/ahs05/tab3-15.pdf

Here's an economic bailout ... (Below threshold)

Here's an economic bailout plan for you that would work better than that proposed by the President--and would cost exponentially less than the proposed plan.

According to the U.S. Census Bureau, there are about 305 million Americans. Give us all \$1 million. We'd all be millionaires; most of us could pay off all our debts; and we'd save over \$699 billion versus the President's plan. How's that for a tax rebate?

Of course, the value of the dollar would plummet significantly--though I can't help but believe the dollar would be worth more than it would after a \$700 billion bailout. In our current economic situation, we're reaping the harvest of the Federal Reserve fiat money system.

Fr. Daniel Sparks, maybe my... (Below threshold)
Bullwinkle:

Fr. Daniel Sparks, maybe my pencil isn't quite as sharp as yours but when I mulitply 305,000,000 times 1,000,000 I get \$305,000,000,000,000. How that saves \$699 billion from the original \$700 billion just escapes me. I must not have carried a trillion or two somewhere...

Perhaps this new math you're using is what got us into this mess to begin with.

The experts are lost. They ... (Below threshold)

The experts are lost. They only see things through their ponzi scheme ways. It's not only about this bailout. It's about the systemic paradigm that we must keep spending money hand over fist. At some point the bill comes due.

Wild Willy,You hav... (Below threshold)
bs69:

Wild Willy,

You have no clue.....I represent 2 buyers on a commercial project with a 800+ credit score that make mid 300,000's per year, per guy .They have been turned down by 9 institutions for a \$ 300,000 commercial loan......Get into the REAL WORLD !

I run a small business - ar... (Below threshold)
Stan R:

I run a small business - around 20 employees. I also meet with other owners once a month to talk about the details of that job. Some of us have lines of credit. We've al had common experience here, - my banker told me renewing that line isn't an issue if we meet our numbers. i.e. if we have a safe amount of debt they want us to use there money. They just want to make sure they get it back. If we sell off all of our inventory or AR drops then the line needs to be paid down.

I still have banks competing for my line - mostly because I don't really need it. Some marginally profitable or highly leveraged businesses can get their lines pulled and if they can't find someone else to renew it they shut down. Usually that only happens when there are other issues. Sales dropping or are margins thin.

Without a doubt lending is tightening but from such a loose baseline it's hard to see it being tighter then it should be just maybe back to normal. - Unless you do real estate development then they will probably tell you o go away. :)

Brilliant post and congrats... (Below threshold)

Brilliant post and congrats on the Rush pub. I knew the big guy was reading here, especially the comments. That's why I always take the time to say really brilliant stuff and things (Oops, that's "things and stuff").

I can feel it in my bones..."I was reading a very pertinent and insightful comment at Wizbang Blog today by the very pertinent and insightful.." AAAAHHH, WHO AM I KIDDIN'!? Everyone knows mantis is the master of insiteful pertinency. I'm such a fool!

Excuse me if I'm wrong here... (Below threshold)
AxeTracks:

Excuse me if I'm wrong here but maybe someone can help explain this to me. They say we are in a credit crunch and banks won't lend money. Well if a bank stops lending money I believe it will go out of business as sure as if it lends money and doesn't get paid back... right? I mean the bank has employee and they have salaries... and the bank is paying me some percentage to have my deposit (say 2%). Now the bank owes me and its employees and all its operating costs. To pay these they must MAKE money on my deposit. If they don't lend that money then they don't make any money and then they can't pay their employees, their depositors, their operating costs... There is a credit crunch... really? If that is the case then maybe we should all make a run on the banks because if they ain't lending then they ain't going to be here for long...

Economics and politics asid... (Below threshold)
Thistle:

Economics and politics aside, the report quoted indicates that the median outstanding loan is about \$92,000. This article says that the bail out money could pay off all the loans under \$75,000. That is actually a less than half of the loans and not "well over half" as stated. I know it's a minor detail, but it is exaggerating how much money the bail out is in comparison to the outstanding mortgages.

So what does \$700,000,000,0... (Below threshold)
mark daynes:

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..

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