Monday, April 27, 2009

Add It Up And It Still Smells

A simple hypothetical and some simple arithmetic show that something may be fishy in bankster land.

For sake of the hypothetical, assume that there are 2.5 million homes in foreclosure.

Further, assume $2,000 as the median monthly mortgage payment for each home.

In this hypothetical, to get money into banks, and to prevent foreclosure on those homes, assume further that we (government) as a financial rescue plan send a check with the home owner and the bank as payees. That is, both have to negotiate it.

The home owner signs the check and gives it to the bank as the mortgage payment.

It is deposited and thus it is in the bank. In this scheme, the home owner owes the U.S. that amount and will pay a small interest over time; and a lien attaches to the home. It can be paid off early if the home owner wants to do that.

Finally, assume that we will do this long enough to get the home owner through the recession; which we will assume will be a 3 year period of time.

The arithmetic on this hypothetical would be: 2,500,000 * $2,000 * 12 * 3 = $180 billion.

Hypothetical results: 1) the housing crisis would be substantially helped because foreclosures would go down and property values would be positively affected (even if the property value holds even); 2) money would go into the banks; 3) which the banks could then loan out; 4) and the government would have a lien on the property for security.

NOTE: the example is not for the purpose of advocating socialism or the like, it is simply to show a contrasting equation and methodology to assist in the housing crisis.

Instead, under the current bailout plan the government has given ten times that amount or more ($750 billion plus) directly to failing institutions.

Those institutions, which are already in trouble, then use substantial amounts of that bailout for bonuses, send it overseas, and other unknowns.

The government is not in a secure position on the debt either, and home owners have been bypassed and not included so no foreclosures are prevented.

As to the auto industry. Use the same formula for 7,000,000 vehicles a year with a $900 monthly median payment, and the arithmetic results in $226.8 billion going into the banks, and the auto industry sells 7 million cars a year.

So the total looks like $226.8 + $180 = $406.8 billion, which is about half of the give away bailout figure, and we will have put $406.8 billion into the banks, induced 21,000,000 vehicle sales, and saved 2.5 million homes as well.

Surely, then, there must be 50 ways to do it better than it is being done?

The next post in this series is here.


  1. I hate you! I was having a decent day until you pointed out the simplicity of this...

    I knew the bail out was wrong but I never did the math...

    I'm just going to send a quick email to the President and the roll up in the fetal position for a while...

  2. ordinary average guy,

    I am no genius, but I know not to leave common sense at home when I go to work ...

    spread the word bro, it belongs to all of us ...

  3. "spread the word bro, it belongs to all of us ..."