Understanding the Bank Bailout


This is a disaster. As you may have heard our plans for the Big Bank Bailout (BBB) failed in the House. This is the worst thing that could happen.

I know lots of good folks were complaining about the BBB. It’s too bad so many people are so illinformed about economicalness. I think that since we were talking about more than $700 billion US dollars, most of you just couldn’t comprehend how much money that really was and how it was to be used. This inability to comprehend the amount of money we’re talking about, and its proposed usage, leads to the current situation whereby the People, in their confusion, called their senator or local congressman and complain — on a 200 to 1 — against the BBB; and the plan failed.

That’s just plain wrong.

I’m here to help you understand, in layman’s terms, what the fuss is all about. It seems to me that the problem is based in two simple-to-understand areas: How much money is $700 billion dollars; and, how to put a certain value on so-called “Toxic Assets.”

First let’s get a grip on Toxic Assets. What are Toxic Assets? It doesn’t mean what it sounds like. Toxic Assets are not a rock band (although that would be a good name for one), but things that may not be worth what the price tag says (Sorry, about getting technical on you there). What they mean by “Putting a value on Toxic Assets” is “How to put a value on something that no one wants to buy?” Now, do you see? It’s simple.

Imagine that you are having a garage sale. The wifey and you are down on your luck (well, not that down, you still have a garage), so you have a sale. All those years of stuff cluttering up the basement and attic have to go. But what price do you put on them? Well, most people would do something stupid and sell the stuff for cheap just to get rid of it all… Don’t make a whole heck of lot of sense when you really stop to think about it, now does it? This is why there are so many losers stuck where they are and the Big Boys, well shucks, we’re players!

Put yourself in the mindset of the Big Boys and let’s see if we can’t figure this thing out.

OK, here goes: I have a piggy bank for my son. This means, I run a bank. This bank has done well over the years, better than many American banks today (snickering at that Lehman dude for not hiring me outta college!) My son’s piggy bank takes in daily deposits and makes loans time to time for items such a cigarettes and liquor (Alright already, I promise to pay it all back!) Still, this bank has done very well. This means I am the president of a bank and Savings and Loan still in operation since 2004.

Now, say I want to get a bigger loan from another bank (my wife). I have an urgent need for cash flow; I need money to go out drinking with the boys. What do I have for collateral? Well, I do have a job… But, my wife gets all the money anyway, so that doesn’t work. Aha! I have it! I have Toxic Assets. But what value to put on these Toxic Assets?

Well, let’s look at two examples: From my collection of Sex Pistols stuff, I have a real Sex Pistols lunchbox. Really! It’s the real thing. Made in China and everything. Comes with a Thermos and a cup. Now, I tell my wife that she can sell it on Yahoo Auction. She says,

“It’s junk that has no value to anyone excepting you. Keep it. I’ll give you the $30 dollars for drinking.”

See? It worked out, since the lunchbox only cost me $15 dollars (plus $48 shipping from England) it has served me well as an asset. She may think it is a Toxic Asset, but I think it’s cool.

True value of said lunchbox: $30 and one hell of a buzz from drinking with my buddies (plus future use as possible collateral). It’s a win-win. I get out of the house, drink with the boys; I don’t complain when my wife wants to do her hair or buy some jewelry, bags, or other junk.

Of course it’s a Toxic Asset. What did you expect from the Sex Pistols?

OK, the Sex Pistols lunchbox may be hard for you to understand (or very understandable, if you are a Pistols fan) so let me give you an example that every Red-Blooded American boy can relate to. Remember Wood Shop in Seventh-Grade? Remember the crap you made there, but your mother loved it because you made it? We all made napkin holders, ducks that hang in living rooms, and, of course, a salad fork and spoon. For today’s economics lesson, I’d like to use the salad fork & spoon (I’d also like to use it for dinner — just a little humor there). Now what is the value of that salad fork and spoon? Is it a Toxic Asset, or a precious childhood memory?

I think we all know the answer to that question. Memories are priceless. For everything else, there’s Mastercard. So to you, or me, what is the value of that salad fork and spoon? Zero. It’s an embarrassment that we’d all like to forget. Put that thing in the trashcan first chance you get.

But to mom! Dear old mom! That salad fork and spoon is a gem that sparkles of a long-gone past time when you weren’t such a little jerk; it is a jewel that deserves placement next to mom’s wedding ring or dad’s Porsche. Considering this, what’s the true value of the salad fork and spoon? Probably about 0 cents, not even good for firewood. But what’s the price of something that you made as a child? Something that’s irreplaceable, and priceless? Let’s low-ball it at, say, $225,000.

That was easy, wasn’t it?

Laugh now, but think about this, my friends: If someone, like Hank Paulson, came up and offered you $225,000 for the salad fork and spoon you made in Seventh grade, don’t tell me that you wouldn’t sneak into your own mom’s house and steal those things back and sell them to him. In fact, I’d wager you’d do it for even 1/10th the price.

Seventh Grader’s salad fork and spoon project (circa 1979). Slightly cracked, er, in the business we call this a “fixer-upper” and a steal at only $89,000!

Stealing from your own mother! Shame on you.

The next part that people don’t understand is the easiest: The $700 billion dollars. Once the facts are laid out for all to see, I’m sure you’ll agree; it’s really not all that much.

What, with the consequences of doing nothing to consider…

Now, to understand how much money $700 billion dollars is I searched and looked it up (I really did, too, as my pocket calculator won’t go past eight digits). According to the US Department of Treasury a bill is .0043 inches thick. That means that a one billion dollar thick stack of one hundred dollar bills would be 43,000 inches tall or 3,573 feet tall. Take 3,573 feet multiplied by 700 and — Presto! — You have a stack of money about 2,501,100 feet high. Now that may sound like a lot, but in metric terms, it’s not. In metric, 2,501,100 feet is only a little over 762 kilometers. That ain’t so far sounding, now is it? Heck, it’s just a little more than a holler from the 735 kilometers distance between Chicago and Buffalo, New York. And I’ll bet many of you have made that trip many times. So, have a cocktail, recline your seat and relax. It’ll be over in no time.

So there you have it, folks. The Big Bank Bailout in easy-to-understand terms. I hope I’ve helped you out and I also hope that folks, who voted against the passage of the bill; folks like Ron Paul read this and rethink their positions.

We cannot allow the US economy to go down like this. Hank and I need the money.

So, whaddya say, folks? Give us another chance.

By the way, I understand Hank still has a rare hand-made wooden napkin holder (circa 1959) lying around here that you folks might be still interested in… It’s probably worth millions.