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Putting the $700 billion bailout in perspective

Yvette Cendes

Issue date: 10/10/08 Section: Opinion
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Last week, the United States Congress passed a landmark $700 billion bailout bill in an attempt to save the faltering American economy. But how much is $700 billion anyway, and what does the government plan to do with it?
Let's start first by trying to grasp the scale of the numbers. Imagine I gave you access to a gigantic bank vault filled with nothing but one dollar bills, and said you could keep every bill you counted. How long would it take you to reach $700 billion if you counted one dollar bill per second without stopping?
As it turns out, if you were to count a dollar every second it would take you just under 17 minutes to earn your first thousand. You could count on being a millionaire after eleven and a half days, but it would take 115 days to count $10 million and over three years for $100 million. You could take pride in passing the one billion dollar mark at 31.7 years, but it would take you just under two thousand years to pass Warren Buffett as the world's wealthiest person. And it would take you no less than 22,182 years to reach $700 billion, the maximum amount authorized in the federal bailout.
For some perspective, 22,182 years ago you could still find glaciers in the Cleveland area and Neanderthals in Europe. And I guarantee none of your ancestors have the foggiest idea as to why you care so much about green pieces of paper in the first place.
As for what the bailout bill is supposed to do, the government isn't as much spending it as much as putting up to $700 billion into a somewhat risky investment (wow, I feel a lot better now, don't you?). Our American economy is run in a way that depends on the availability of credit - a couple buying a house will take out a mortgage, and a guy wanting to start his own business will probably take out a loan. These come of course from our banks, which in turn bundle up the mortgages in packages called "mortgage-backed securities" that are sold to investors.
The current problem stems from how solid loans are bundled together with loans from people who cannot afford to pay them back. A lot of mortgages were given in recent years to people in the latter category, and there are enough of these sub-prime loans in the mortgage-backed securities that no one is willing to buy them, even if most of the mortgages they contain will be paid back. Assets worth millions of dollars are thus written off as having little value, which can force a bank to close its doors because its financial balance sheet is negative. Further, because no one trusts the mortgage-backed securities and banks have no money in reserve to give loans, it ends up affecting the entire economy.
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