Bailout? What Bailout?16 Oct 2008
The “cost of the bailout” has been a big election meme south of the border, and I continue to be flabbergasted at how primitive the media discussion of the issue has been. The first debate event began with a question that essentially said “given the $700B cost of the bailout, what parts of your campaign platform would you cut to pay for it?”.
How about: none of it. How about: tell you what, I’m going to spend more.
The US of A is going to sell $700B worth of Treasury Bills (bonds) to various countries, institutions and people – China, Saudi princes, sovereign wealth funds, foreign banks, and so on. For short, we’ll call them “the Suckers”. These bonds are going to pay the Suckers some absurdly low interest rate, like 2% or less.
The US of A is then going to turn around and exchange the $700B it got from the Suckers for preferred shares in the banks, which will pay 5% for the first five years, and 10% after that.
So, rather than costing the benighted tax payers of the USA anything, this “bailout” is actually going to be netting the Treasury $700B * 3% = $21B a year. The only people with anything to complain about might be the Suckers, and it’s not like anyone is forcing them to buy Treasury Bills.
Why is this rather elementary fact not finding its way into the political discussion of the “bailout”? Too much math?