Why $700 Billion?

Ever since the original $700 billion bailout proposal was suggested, I’ve been wondering how this figure was arrived at. After all, why not $600 billion or even $900 billion?

You’d think that maybe for some time a group of sharp economists and bankers in the know have, behind closed doors, pored over stacks of numbers and reams of papers trying to figure out what is really needed and which number would be accurate. Even though I am against any type of bailout, this process would have sounded reasonable to me.

Well, I was dead wrong in my way of thinking. Reader Bill alerted me to an article in the LA Times titled “You won’t believe where that $700-billion bailout figure came from.”

Here’s what it said (emphasis added):

Here’s something that John McCain and Barack Obama and Sarah Palin and even longtime Washingtonian Joe Biden probably don’t know. Not to mention Bob Barr, Ralph Nader and Ron Paul, who usually knows everything.

It’s a fascinating footnote to the economic and political bailout debate that’s kept so many people from more properly focusing on the pennant races and the Colts’ problems in the last week. (Incidentally, do you think we’d have had this big fight if President Bush had called it a “rescue” plan instead?)

Our buddy from two lifetimes ago, Carl Lavin over at Forbes.com, points out a fascinating paragraph buried in a story on his website late last week by Brian Wingfield and Josh Zumbrun.

You know, this $700-billion figure that exploded into everyday political parlance almost as fast as Sarah?

The $700-billion figure that Senate Democratic Majority Leader Harry Reid first said he could really use McCain’s help with, but then the Arizonan took him up on it and Reid suddenly said the Republican would only get in the way and anyway, Reid said, he already had a done deal, except he didn’t and the Nevadan ended up being the embarrassed one?

The $700-billion figure that dominated the first part of the first presidential debate of the 2008 general election season between McCain and Obama?

The $700-billion figure that won’t really end up being anywhere near the actual cost because no one knows what all those mortgaged properties are really worth now anyway? Which is the whole problem in the first place because the institutions holding that paper don’t know the value of what they’re holding either, which is why everyone suddenly got so frightened?

That $700-billion figure that won’t really last because eventually the feds will sell off what they’re buying and might even make a profit in the end as they did with the Chrysler bailout warrants years ago?

You know where that very important $700-billion figure came from?

Here’s a quote from that Forbes story:

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.”

They made it up to be sufficiently ginormous to frighten everyone into rapid action.

And it worked.

There you go. It was nothing but a shock-and-awe attempt to generate quick action. How low can you stoop and how disgusting can you get using nothing but fear to cram down a questionable bailout package, which in my view will do nothing for the economy and merely prolong problems that should have been faced right now.

If you’ve heard a different version of where the $700 billion figure came from, feel free to share it with me.

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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