September 29, 2008

Bailout’s ‘$700 Billion’ Cost Is a Contrived Wild Guess; Media Mostly Ignores

As I write this on Monday afternoon, the People’s House has rejected “the $700 billion bailout.”

You won’t believe, unless you’re a very experienced cynic, where that $700 billion figure came from.

The answer appears to be “out of nowhere.”

With no basis.

I’m not kidding.

Here’s the evidence, carried six whole days ago at Forbes (HT LAT’s Top of the Ticket Blog via BizzyBlog commenter Dan Scott):

….. The committee’s top Republican, Alabama Sen. Richard Shelby, says he’s concerned about its cost and whether it will even work.

In fact, some of the most basic details, including the $700 billion figure Treasury would use to buy up bad debt, are fuzzy.

“It’s not based on any particular data point,” a Treasury spokeswoman told Forbes.com Tuesday. “We just wanted to choose a really large number.”

My guess is that the person just quoted, if discovered, might be better known today as a “former Treasury spokesman.”

It doesn’t seem like a wild stretch to suggest that there is a whiff of blackmail in the figure Treasury decided to use (i.e. “How big does it have to be to get them to do what we want?”).

This is serious stuff ….. right?

Yet the press coverage of this quote, admittedly unattributed (not that it’s stopped the press before), is very light. Further, though I may have missed it, I haven’t seen anyone challenge Paulson, or Bernanke, or Bush about the validity of the $700 billion figure.

The New York Times has not reported it (search is on “particular data point” in quotes) in its regular news coverage. It is mentioned at the Times’s Freakonomics blog — in a comment.

The same search at Google News at about 3:00 p.m. ET returned 61 items (not 66, as claimed on the first page). Almost all are local TV stations, relatively minor publications, or right-leaning blogs. I saw not major Old Media outlet.

Although many of those TV items indicated that the Associated Press had a hand in their reports a 7-day search at the home page of ap.org came up empty, even typing “particular data point” without quotes.

I daresay if most Americans knew of the Treasury person’s quote, the communication lines in Washington would melt down. How can this possibly not be important?

Cross-posted at NewsBusters.org.

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9 Comments

  1. Now if the MSM wasn’t interested in telling the truth of the $700 billion figure, can we now guess as to why they wouldn’t be talking about the deficit ballooing to $800 billion for 2008. I would say the reason is the MSM knows the jig is up on Democrats claiming “investments” on social spending and other pork projects like expensive alternative energy. They don’t want the public to realize what is going on otherwise they fear the public will demand a stripped down government budget which in turn does not favor Democrats. Proffer your own explain at the mysterious silence of the MSM regarding a REAL number.

    Comment by dscott — September 29, 2008 @ 4:05 pm

  2. I’ve been chewing the ears of several staffers at Rep. Betty Sutton’s office for days now, urging her to vote against the bailout. She got it right … this time. Next, I’ll be calling to ask if she’s aware of the origin of the $700 billion figure.

    Comment by Alo Konsen — September 29, 2008 @ 4:09 pm

  3. The $700 billion bailout price tag: completely made up…

    To get a bailout bill passed, the Treasury Department needed a big, scary figure … so they made one up. Tom Blumer has the details…….

    Trackback by Brain Shavings — September 29, 2008 @ 4:44 pm

  4. My congressman is Issa, one of the stauncher fiscal conservatives in the House. I sent him an email of encouragement today, and requested that he work towards forcing the resignations of Paulson and Bernacke.

    Comment by Hermit Dave — September 29, 2008 @ 5:59 pm

  5. Pretty disturbing stuff. Congrats for unearthing this one, Tom.

    I am disappointed to see that my rep, David Hobson (R-Springfield), voted for this, but Hobson is a decent and thoughtful guy, and I believe he had reason to support it. Then again, he’s a lame duck guy who will retire in January.

    Comment by Bob Stolz — September 30, 2008 @ 6:54 am

  6. Tom, I think it is time we give the pols some help in fashioning a proper response to a government created crisis.
    Now that the porked version has gone down, let’s get serious:

    As long as the “Bail out” does not address the problems that created the mess, I will not support it and vote against any politician who votes for it.

    These points are non-negotiable:

    1. Repeal the Community Re-investment Act (1977), anti-Redlining legislation and all of its subsequent modifying acts to embellish those laws for so called Affordable Housing. There are apartments available to rent, no one is being economically disadvantaged due to this style of living.

    2. NO taxpayer funds will be used to stop property foreclosures.

    3. NO taxpayer funds will be used to stop defaults on student loans, credit cards and auto loans.

    4. NO loan write downs.

    5. NO tax free exemptions from income for walking away from debit.

    If you really want show legitimacy, then force the immediate resignations from office of Senator Dodd and Rep. Frank for the part they played in refusing to reform the system in 2005 to head off the crisis. If they won’t resign, then impeach them. There must be accountability, heads must roll.

    The Real Plan, the one that will work:

    “Insure” the existing mortgages with the full faith and credit of the US instead of buying the mortgages at a discount. Insuring the mortgages at their full original value would solve the CDO issue since their values were based on the original mortgage value. The real issue is the broader market whose entire value is based on those mortgages. Insuring the mortgages would restore their value and indirectly ALL the financial instruments based upon them with minimal cost.

    What this plan would not do, it would not reduce anyone’s mortgage payment or principal thus allowing them to skate on their financial responsibility which is what got us here in the first place. So what would happen in essence is a bank could foreclose on a defaulted mortgage (not lose money) and then kick out the people who weren’t paying their bill so that the house would be put on the market. Those people kicked out would have to go rent an apartment (which is where they came from in the first place). The Banks at that point can fire sale the foreclosed house and the government would make up the loss between the outstanding mortgage balance and lower sale price if any. New home owners with good credit can then purchase a house at a discount and banks can then give them a mortgage with responsible down payment terms which will not be defaulted upon.

    The caveat is mortgage money for new construction must be limited by a 20% down requirement, that way the housing inventory can be reduced through attrition, thus unwinding the whole mess without severe dislocations of the market.

    The alternative of the current plan with modifications:

    1. Taxpayers will purchase the toxic loans at current market value (cash as last resort).

    2. Abolish Fannie Mae and Freddie Mac, trade marketable good loans (at current market value) to firms for toxic loans.

    3. Every Senator or Rep. on the banking and commerce committees who opposed the reforms of Fannie Mae and Freddie Mac in 2003, 2005 and 2006 MUST RESIGN IMMEDIATELY or be impeached. This point is not negotiable, millions of Americans are out of work because of your foolishness, it’s time you feel their pain.

    4. Every CEO, CFO and Board of Directors of the firms with toxic loans to be swapped or purchased must RESIGN IMMEDIATELY or withhold the bailout from their company. This point is not negotiable for reasons stated above and due to incompetence.

    5. Certain loans will NOT be purchased: Those loans made to illegal immigrants, i.e. not legally residing in the US. If your company folds because you flaunted the Laws of the US, you and all of those who conspired with you are not entitled to our money in any form.

    6. Set up the Resolution Trust Corporation (RTC) to handle the toxic loans, they will have the power to sell, renegotiate, foreclose, rent or bulldoze the property based on the most optimum target value that can be reasonably achieved over say a 5 year period.

    7. All actions by the RTC will have immunity from the Bankruptcy Courts, their word is final.

    8. Finally, no loans will be made to anyone who doesn’t have a down payment for a mortgage to purchase a house, condo, townhome. A $10,000 minimum is required. There will be a sliding scale of interest based upon the credit score and amount of down payment. Those with high credit scores and or high down payments get the lowest interest rate. Those with the least down payment and low credit scores get the highest interest rate to reflect their commensurate default rate. As their equity increases in combination with good payment history, the interest rate should be revised (every two years) to reflect their equity stake based on market value and credit risk.

    Comment by dscott — September 30, 2008 @ 9:12 am

  7. I like most. I wish we had the votes to impeach those involved. Unfortunately, they’re still seen as heroes in the fever swamp.

    Comment by TBlumer — September 30, 2008 @ 9:32 am

  8. I would like to draw everyone’s attention to the timeline of how many opportunities were squaundered in not being proactive. This is a reprint from a poster at NB.

    Interesting, Pelosi’s words,

    “It’s a staggering figure…. $700 billion, a staggering number, but only a part of the cost of the failed Bush economic policies to our country,” Pelosi said, blaming Bush for inheriting a budget surplus and turning it into a record deficit with ” reckless economic policies…. “It’s really an anything goes mentality, no regulation, no supervision, no discipline.”

    1. 2001-April, the Bush administration, in its 2002 budget proposal, asserted that the size of Fannie Mae and Freddie Mac is a “potential problem,” and that financial trouble in these “Government Sponsored Entities,” or GSEs, could “cause strong repercussions in financial markets.”

    2. 2003, autumn, the Bush administration pushed Congress to create a new federal agency to regulate and supervise Fannie Mae and Freddie Mac.

    On 2003-Sep-10, then-Treasury Secretary John Snow, before the House Financial Services Committee, ” We need a strong, world-class regulatory agency to oversee the prudential operations of the GSEs, and the safety, and the soundness of their financial activities.”

    On the same day, 2003-Sep-10, at the same hearing, the ranking Democrat on the House Financial Services Committee Congressman Barney Frank (now chairman of the same committee) said in response, “Fannie Mae and Freddie Mac are not in a crisis. The more people, in my judgement, exaggerate a threat of safety and soundness, the more people conjur up the possibility of serious financial losses, to the Treasury, which I do not see, I think we see entities which are fundamentally sound financially and withstand some of the disaster scenarios, and even if there were a problem the federal government doesn’t bail them out. But the more pressure there is there, the less I think we see in terms of affordable housing.”

    The legislation the Bush administration put forward that day was blocked.

    3. Alan Greenspan, 2005-Sep-17, to the House Financial Services Committee, on Fannie/Freddie, “Enabling these institutions to increase in size–they they will once the crisis in their judgement passess–we are placing the total financial system of the future at substantial risk.”

    4. Alan Greenspan, 2006-Apr-6, “If we fail to strengthen GSE regulation we increase the possibility of insolvency and crisis.”

    The same day, Democratic Senator Chuck Schummer, “I think Fannie Mae and Freddie Mac over the years has done a good job and are an intrinsic part of making America the best-housed people in the world. If you look over the last 20 or whatever years, they have done a very, very, good job.”

    5. Senate floor, 2006-May-25, John McCain, “For years I have been concerned about the regulatory structure that governs Fannie Mae and Freddie Mac… and the sheer magnitude of these companies and the role they play in the housing market… the GSEs need to be reformed without delay.” In the Senate Banking Committee, the Fannie/Freddie reform legislation that McCain cosponsored, 100% of the Republicans voted FOR it, and 100% of the Democrats, including Chuck Schummer and Chris Dodd, voted AGAINST it. As we know now, Dodd received $133,900 in campaign contributions from Fannie/Freddie ( per opensecrets.org ), ranking #1 in Congress. Obama received $105,949 from Fannie / Freddie ( per opensecrets.org ), ranking #3 in Congress. Senator Obama was silent on this legislation.

    6. 2008-Sep-25, former President Clinton indicated he AGREED with Fox News assertions that Democrats are responsible for failure to rein in Fannie/Freddie–Bill Clinton told ABC’s Chris Cuomo that for years, Democrats have been “resisting any efforts by Republicans in the Congress or by me when I was President to put some standards and tighten up a little on Fannie Mae and Freddie Mac.”

    Posted by: SuperiorBank failure | September 29, 2008 2:38 PM

    http://newsbusters.org/blogs/nb-staff/2008/09/29/open-thread#comment-730861

    Here is the McCain ad video on #6 http://www.youtube.com/watch?v=r2RZ0sUcVcE

    Comment by dscott — September 30, 2008 @ 1:41 pm

  9. So why in the heck is McCain screaming for Chris Cox’s resignation? That makes absolutely no sense.

    Comment by Rose — September 30, 2008 @ 10:42 pm

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