Government bailouts

How about trying the old math instead?

By JT Seravat

Seven trillion dollars, give or take a few hundred billion, is the approximate amount the government has given, loaned or pledged to banks, insurance companies, mortgage friends Fannie and Freddie, JP Morgan, WaMu, the Big Three auto manufactures and others.

This must be part of that new math those simpletons like columnists, bloggers and reporters cannot comprehend.

I certainly can't figure it out, at least not with "new math."

Presented with this crisis, I would have applied a version of simple math using complex formulas like addition and multiplication.

The Housing Crisis.

According to a Nov. 13 article on CNNMoney.com, "A total of 936,439 homes have been lost to foreclosure since the housing crisis hit in August, 2007.

So let me sharpen my #2 pencil and get started.

Let's start by rounding off the number of foreclosures to 1,000,000 (1 million).

Although figures differ, the median home price peaked in 2007 at about $247,000. I'll round that up to $ 250,000.

So now, lets see, that's two parts of the formula.

The median monthly payment for a home valued at a median price of $247,000 at a 30-year fixed mortgage at 8 percent interest, with annual property taxes of $3,000, insurance of $1,500 and a .5 percent PMI (private mortgage insurance) would be $2313.58.

Hell, let's round that off to $2500.00

So here we go, the simple math solution.

One million (homes) x $2,500 (monthly payment) x 24 months (two years of payments) = $60,000,000,000 (60 billion dollars).

Throw in another $120 billion in case two million more homes go into foreclosure in the next year, and we have a total bailout of $180 billion.

The auto crisis.

A new vehicle (car or light truck) averaged approximately $31,000.00 in 2007. The auto industry will sell about 3million to 4 million less of them in 2008, when all the numbers are in.

So let's say with taxes, delivery charges, registration and average insurance the car, out the door is $35,000.

So here we go again, the simple math solution.

4 million (vehicles) x $35,000 (cost per vehicle) x each year for two years = $280,000,000,000 (280 billion dollars)

Oh, and then there's the $143.8 billion for American International Group (AIG).

Well I won't dispute them needing all of that money. Hell, just let them have it.

It's insurance and, as we all know, we couldn't figure if they really needed all that money even if we read all 143.8 billion pages of the policy they would write explaining it.

Ok class, so now let's use a little old fashion addition and come up with a total.

-Paying mortgages on 3 million homes for 2 years = $180,000,000,000.
-Buying 4 million vehicles a year for two years = $280,000,000,000.
-And paying AIG a premium because we have to = $143,800,000,000.

Now after having Jethro Bodine check my math, I figure that comes out to $603,800,000,000. ($603.8 billion).

So, obviously I'm missing something here. It couldn't be as simple as this to have fixed the problem. Could it?

By the government standards I'm more than $6,000,000,000,000. short (that's six trillion folks.)

But if the economic crisis was caused by the banking crisis, which was caused by the housing crisis, which was caused by the foreclosure crisis, wouldn't paying people's mortgages have prevented that.

And if the auto industry is on the verge of bankruptcy simply because they are selling 3 million to 4 million fewer vehicles each year than in the past, wouldn't the government buying vehicles prevent that?

It's way to complicated for you or me to understand.

Writing for The American Conservative magazine in October 2008, Eamonn Fingleton said, "Both Treasury Secretary Henry Paulson and his key adviser Neel Kashkari, formerly held top jobs at Goldman Sachs, and it seems clear that their highly controversial and, to economic historians, bafflingly unorthodox bailout plan serves Wall Street’s interests — particularly those of their former employer — far more than the American public’s.”

Like, I said, it's way to complicated for you or me to understand.

Perhaps our great-great-grandchildren can figure it out over a big bowl of mac 'n cheese, when they finally pay off the tax bill associated with this latest episode of "greed is good" capitalism.

First published December 1, 2008

© 2008 Seravat Writers Group LLC