What if we bailed out … us?

According to Bloomberg, November 24, the United States (that would be you and me) is prepared to provide $7.76 trillion to bail out the financial system.

Apparently it needs that money because of something like this: Bank A agreed to pay bank B a lot of money if the loans bank C made went into default. Insurance company D guaranteed the money bank A agreed to pay bank B, for which guarantee bank B agreed to pay company D a premium. Bank C then raised the interest rate on its loans high enough to guarantee that they would go into default. Bank A had told a fib and didn’t have the money to pay bank B, so bank B turned to company D, which had also told a fib because it had used the premiums to send its execs to Barbados so it couldn’t make good on its promise.

You would think that all would be ok if we just bailed out bank C. But no. Bank C and its debtors aren’t the problem. The problem (according to the people with public voices)is banks A and B and company C.

Let me see if I understand this. I buy a house and borrow $250,000 from bank C at 3% interest. After a couple years the interest rate goes to 10% and now I can’t afford the payment. I lose my house. That isn’t a problem. Mr. Lynch bets Mr. Sachs that I will default. Mr. Sachs takes the bet after he gets Mr. Aig to guarantee the bet. When I default Messrs. Lynch, Sachs and Aig look at one another and burst out laughing. None of them really has any money. That is a problem. But they have friends in high places, so they go to some smoke filled room with Messrs. Paulson and Bernanke. Ok, I miswrote. There’s no smoking.

“At the end of the day” (they like that phrase), I am homeless, bank C is a landlord, and Messrs. Lynch, Sachs and Aig pocket $2.58+ triilion each.

BTW. In year 2007 there were 93,197,000 households in the US with incomes less than $100,000 a year. We could have taken that $ 7.76 trillion and bailed them out to the tune of about $83,000 per household. Or, let’s be fair and include the guys in the financial system. There were 116,783,000 households, total. Each one could get between $66,000 and $67,000.

As it is, each household gets to add between $66,000 and $67,000 to its debt.


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