I've been trying to capture for people just how dire the situation is behind this bailout.
We keep hearing $700,000,000,000 (that's seven hundred billion dollars) bandided about as if it's what we're actually going to pay.
But there's a lot more.
Before I get into the "more" let's do a little thought experiment on the $700 billion.
You know those "Visualize Whirled Peas" bumper stickers? I'm going to help you visualize $700 billion dollars, and some other interesting dollar amounts, which might help you see what we're up against.
Warning for the faint of heart: don't read this diary.
For everyone else, I hope you will take any numbness you may feel when you're done and convert it into righteous anger, then turn that anger into serious community organizing to get this "bailout" stopped, and replaced with a New New Deal, because that's the only thing that will save us.
This Diary is long. Really long, but hopefully easy to read. It's the combination of 2 diaries I posted on Green Mountain Daily (with some small edits for clarity and corrections to the math - gotta remember to divide by 5,280 to get miles from feet. Now you know why I wasn't a math major...)
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:: Part One (from Tuesday):
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First, some kudos to Congresswoman Marcy Kaptur, who took only 5 minutes to describe the administration's shell game, propose a solution that protects the American people and call for an independent counsel to investigate the architects of this colossal economic failure:
Oddly, she seems disinclined to give the architects of failure a building permit for more failure.
These architects have created not just the teeny-tiny sub-prime mess, but also the "$10 trillion global over-the-counter credit derivatives market." $10,000,000,000,000,000 is a lot of money. It's a whole lot more than $700,000,000,000. Here, I'll line them up so you can see the difference:
700,000,000,000
10,000,000,000,000
Notice those extra zeroes? Not really impressive when you see it that way. Hmmm...
How about this:
If you had a 4" stack of $1000 bills, you'd have a million dollars. Imagine what you could buy with a million dollars!
Now, if you had a billion dollars, that stack would be 47.35 miles high. Your arm would get really tired.
If you stood all those $1 bills on their sides and packed them together, and you drive a 6" wide car (kinda like those little ones driven by the guys in fezzes, but narrower), you could drive from Burlington, VT to Montpelier, VT and half way back without driving over the same bill twice.
Imagine how many bridges we could replace with all those $1 bills!
Now for the bailout: if you had 700 billion dollars in $1 bills, you could do two round-trips from Burlington, VT to Washington, DC on them, and still have enough left to make a few side trips to Allentown, PA (in case you wanted to see some abandoned steel mills), or a one-way trip to Boston, MA.
That's just for the proposed bailout's first installment or $700 billion dollars (remember, it's a floating window. They can keep spending, but there can only be $700 billion outstanding at one time - so they sell something, pay back a part of the $700 billion, then turn around and buy something else to bring the total back up to $700 billion - it's like a magical refilling debit card).
Now back to that $10 trillion dollars in voodoo they call "over-the-counter derivatives." That's the bailout times 14.29. You could drive around the earth 19 times on those $1 bills, plus a couple dozen side trips to Montpelier.
Most of those "derivatives" are really just bets that the value of mortgages would continue to go up.
But the bets weren't placed against actual individual mortgages. Instead they were placed on collateralized mortgages. To collateralize mortgages, you take all the mortgages held by your bank, and toss them into a giant mortgage Cuisinart.
It doesn't matter if the mortgage is good, bad, whatever - in it goes. The output is then divided up into "bad," "not so bad," and "looks good to me" batches, then those batches are sold off to the highest bidder.
The derivatives folks didn't really want to buy the things, they only wanted to place a bet on the future value. Someone else owns the actual mortgage sludge, these guys simply own the right to make a profit if a buyer pays more for the sludge than the guy who bought it before them.
The sludge is passed around from investment bank to investment bank over and over: it's a little merry-go-round o' sludge. And the derivatives market places bets, takes profits, and everyone's happy.
Until the day that someone says, "Gee, I don't think this batch of sludge is worth that much. If you want me to take it off your hands, I'm only going to pay this much."
Now all those bettors, who were betting on the value to go up owe their bookies. But see, the bets had very long odds. So now they owe their bookies a LOT. Like kajillions of dollars.
Sadly, between the derivatives, actual mortgages, CDOs, insurance swaps (more on this later), and all the other weird unregulated debt vehicles the financial industry has created over the last decade or so, the amount owed is greater than the entire value of all the treasuries on the planet.
Oops.
It might not be so bad, if the bettors were just a bunch of numb-skulls betting their own money.
But they weren't. They were investment banks. And they bet our money. Our pension plans, our 401ks, our municipal investment accounts, our IRAs, our CDs. Just about anything that had dollar signs attached was used as the downpayment, with the expectation of large returns.
Now the returns have dried up. And the stuff that's been promised as collateral ... well it doesn't actually belong to the bettors. And the amount owed doesn't actually exist on the planet - even if you put every penny from every treasury on the line.
This means someone's taking a hit.
A really big hit.
And the bettors want it to be us.
And they've come up with all these reasons why it's our fault. After all, we took out the mortgages on the houses whose values kept rising, enticing them to make the bets with the money they were holding in trust for us.
So they want us to refill their pockets with a portion of the money that is owed, so they can quickly pay off their bookie and only get knee-capped instead of being fitted for cement overshoes.
And they want to do it behind closed doors, so we can't see that even after they pay off their bookies with enough $1 bills that you could drive back and forth from Burlington to DC twice (with side trips to Allentown) without touching the same bill twice, they will still owe enough tightly-packed $1 bills standing on their sides to travel around the world roughly 18.8 times (you'd only end up 4,980 miles from home on that final trip - which is only 700 miles longer from a trip from Burlington, VT to Wasilla, Alaska!).
Buckle Up, and Enjoy the Drive!
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:: Part Two (from Wednesday):
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In Part One we drove around the world on dollar bills.
Today we're going to play 2 more games: "Barrel Full o' Dollars" and "One of These Days, Alice!"
Let's start with the easy one.
Go get all the money you have in your house - dollar bills, pennies, whatever. Do me a favor and bring the coins to the bank and get 'em changed into bills - they get heavy. As a matter of fact, get everything converted into singles. Get everyone in your family to do the same.
Count that money.
Let's say you have 100 dollars. Keep $7 of it, and put the other $93 into that big red wheelbarrow I've conveniently placed by your front door.
OK, I'm now taking the wheelbarrow to your neighbor's house, and waiting while he does the same thing. Then to the next house, and so on. If I pass any homeless people, I'm taking their money, too. Ditto for apartment dwellers. And all the stores along the way. And every coffee money jar in every office. You get the drift.
Done.
I've now got the biggest wheelbarrow to ever grace the face of the Earth. It's REALLY big. This wheelbarrow is more than 250 feet wide, 200 feet deep, and 450 feet tall - plus a little extra for the handles and wheel.
Being about the size of a NYC block full 'o skyscrapers, it's a bit tipsy. Next time I'll get one that's wider and not so tall, and maybe add some more wheels...
There are 300 million people in the US, and I just took almost every penny they had - $0.93 from every $1. If everyone in your family combines what's left (unless you're one of the homeless folks), you may be able to squeeze a nice last dinner out of the remainder.
What I took is $700,000,000,000.
Does that number look familiar?
It's the amount being asked for in the bailout. Ironically, it turns out that there is currently $750,000,000,000 in circulation as cash in our economy.
Of course, since that $700,000,000,000 is a moving window, I should have taken the rest of your cash - because it will be taken as soon as the treasury gets around to it after the first round of bailing.
One interesting thing to note about the chart - it's hard to see, but between roughly 1992 and 1999 there was a little bit of a plateau in the printing of money - it slowed a bit.
Then it skyrocketed again.
This means a couple of things - the treasury is using a LOT of ink (barrels full), and the "stable" stock market has actually been losing value due to inflation (let's pretend it didn't take a bath last week).
The stock market has been hovering around the same level for the entire Bush administration. Sometimes it spikes higher, sometimes it drops lower, but generally it stays in the same neighborhood. Maybe it has agoraphobia?
Anyway, the Dow, for example, has been somewhere around $10,000. It's a nice round number to work with, so let's use it.
If on November 2, 2000, you invested $10,000 in a fund that holds all 30 stocks traded on the Dow Jones, today you'd have had roughly $10,080 with little bumps up and down for the last 8 years. (Note: This was mid-day in Wednesday's market, the DOW may be different today, I haven't looked.)
Or would you? See, the Dow's value isn't listed in inflation-adjusted dollars.
That $10,000 in the Dow in 2008 is worth $7,860 year 2000 dollars. You've lost $2,140 in purchasing power. Oops!
But enough of that. I'm ready for a new Apollo Project...
In Part One, I mentioned the $10,000,000,000,000 (ten trillion) dollars of bets known as over-the-counter derivatives. They are in trouble, because an awful lot of these bets were bets that housing values would continue to go up.
Then housing prices went down.
So now a very large percentage of those bets went in favor of the house, and the bettors don't have the cash to pay off their bookies.
Well, the casino has another cool game that became all the rage in the last few years: CDSs - Credit Default Swaps. You can kind of figure out their purpose from their name: If you give someone credit, and they default, you can swap it for something else. It's insurance on debt - if the debt goes bad, the folks you bought the insurance from will make it up to you.
So say you loan your brother $10 and he doesn't pay you back. If you bought a CDS at the same time, then the folks you bought the CDS from will pay you something equivalent to $10. (It may not be actual dollars, it could be some bonds, or something else of equivalent value.)
So let's say that every time anyone who knew about this "insurance" bought insurance every time they issued or purchased debt, debt like the mortgage sludge on the merry-go-round, debt like municipal bonds, debt like credit card debt or car loans. Really, any debt instrument at all.
How much money in these CDS insurance policies would be floating around out there?
I'll give you a hint: $62,000,000,000,000 ($62 trillion).
If you took each of those dollar bills and taped them together end-to-end, you could make a dollar bill rope 31,000,000,000,000 feet long (31 trillion - note: I've chopped .14" off each bill to make them an even 6"). I'll make it double-thickness, so it'll be nice and sturdy. Now it's only 15,500,000,000 (15.5 trillion) feet long.
I don't know if you recall, but a few years ago, Bush proposed sending a manned space-craft to Mars. The moon had worked out so well for Kennedy, he figured that he'd be even MORE popular if he got someone to Mars, which is much further away (120 million miles). Apparently, Bush didn't "get" that the whole purpose of the moon mission was to perfect the ability to get a rocket out of the atmosphere and back into the atmosphere - which would be necessary for long-range warheads. Sadly for Bush, going to Mars would do exactly nothing to further any technological needs, so no one wanted to do it - not even NASA... But I digress.
Since there's no useful technological purpose to sending a manned rocket to Mars, we may as well save the rocket fuel.
Let's get a Mars rover to tape one end of our double-thickness $62,000,000,000,000 rope to Mars.
The only problem: the rope isn't quite long enough. So if we put the President on the free-floating end, and tape other end to Mars, he'd only have to climb 6 million miles. We could spot him the other 114 mil.
Sounds like good way to occupy his time during retirement, no?
Back to the Credit Default Swaps:
Every time a debt goes bad, someone is owed a piece of that 15-trillion foot long double-thick rope.
The 15-trillion foot long double-thick rope is not sitting in a bank vault (or even several thousand bank vaults) ready to be paid out if something goes wrong. As a matter of fact, most of it doesn't even exist . Remember there's only one-bailout's worth of actual printed cash in the entire US economy, and there isn't enough money in all the economies of the entire world to cover $62 trillion dollars.
It's just a promise. A handshake. A deal between two people.
And now a lot of debts are going bad. Houses. Car loans. Credit Cards.
People are losing their ability to pay, and they're defaulting in record numbers. Heck, an entire city recently declared bankruptcy.
And there isn't enough money in existence to pay those insurance awards.
Oops.
So, instead of explaining this all to us, and letting the gamblers hang themselves with their own 15-trillion-foot long double-thick rope, the bettors on Wall Street are trying to suck money out of our pockets to pay it all off in "small" chunks, each of which consists of nearly every dollar in circulation.
Be sure to savor that meal you bought with your last $7.
Sadly, the news is even worse than that.
The International Monetary Fund held a "Chapter IV Consultation" with the Bush administration (aka: they took the US out to the woodshed).
From their press release from just after the they concluded the "Article IV Consultation" [emphasis mine]:
While fiscal stimulus is providing well-targeted support to aggregate demand at a critical time, Directors underscored that medium-term fiscal challenges limit the room for further initiatives. Automatic stabilizers should be allowed to operate, and, in the face of looming fiscal challenges that require medium-term fiscal consolidation and reform of unsustainable entitlement programs, any further fiscal action—were it to become necessary—should focus on direct support to housing and financial markets.
This is all part and parcel of doing to us what has been done to nearly every 3rd world country since the IMF was established. Those pretty words up there are the IMF's way of saying we should implement "austerity measures." The "unsustainable entitlement programs" are things we know by other names: social security, medicare, medicaid, student loans, veteran's benefits, and so on. Kiss 'em all goodbye.
By draining the treasury via this "bailout," the powers that be will ensure that ending social security, medicare, medicaid, student loans, veteran's benefits, and so on, becomes a "no-brainer" - because there won't be any money for them.
Maybe we should all start practicing the new national anthem, "Brother Can You Spare a Dime?":