The Paulson Plan
By Barry Ritholtz - September 22nd, 2008, 2:00PM
Want to get a sense of exactly how expensive the Paulson Plan is?
1 million seconds is 11 days
1 billion seconds is 32 years
1 trillion seconds is 300 centuries
If we take on as much debt as Paulson wants (well over a trillion dollars) and we pay it back at the rate of a dollar per second, it would take 3 centuries to repay. And that assumes its "only" a trillion dollars . . . it could be much, much more.
Watch the greenback go down the rathole.
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September 22nd, 2008 at 2:26 pm
I think you’re off by an order of magnitude, isn’t a trillion seconds equal to 31,709 years?
- Gregg
September 22nd, 2008 at 2:28 pm
He turned me into a newt…..I got better.
September 22nd, 2008 at 2:28 pm
Your math is off. A trillion is a thousand billion; if a billion seconds is 32 years, then a trillion would be approximately 32,000 years – considerably more than three centuries.
September 22nd, 2008 at 2:31 pm
Who expects…really…that this will be repaid? As your post implies, BR, that just doesn’t make any sense.
The govt is in inflate-or-die mode, and the markets recent price trends (gold, T-bills, oil, etc.) certainly indicate that they get the govt’s intent.
That doesn’t mean that inflation will be the result: the banks just need to hold onto their toxic-swap T-bills, and hunker down in their foxholes to survive. Even under the pressure of lowered interest rates (a near certainty) why would they aspire to do anything else?
My take is that this is what will happen. And that means deflation. In spades. Me-thinks Mr. Market has muffed the inflation call.
September 22nd, 2008 at 2:35 pm
The 2 comments above are correct. A trillion seconds is about 30,000 years, or 300 centuries.
September 22nd, 2008 at 2:36 pm
32,000 years is right. And that is just THIS BAILOUT … does not include the previous ones or any new ones like insuring all the non FDIC insured money markets. Which on a side note just makes me look like a chump for not going for the higher interest rates with the non FDIC money markets like all the smart people that knew the government would come in and bail them out if there ever was a problem.
September 22nd, 2008 at 2:36 pm
Barry, Barry — love your objections to the big TARPit, but this is a little over the top. What is this in GDP terms? Less than 10%. What have our fiscal deficits been the past 6 years? And what has “actual” (not ex-inflation) inflation been during those years?
TARP isn’t the end of the dollar, it’s just the exclamation point at the end of a long, long death sentence.
September 22nd, 2008 at 2:36 pm
CNBC (via Mish) adds it up at 1.8 Trillion.
September 22nd, 2008 at 2:37 pm
Anyhow, it’s TWO THOUSAND DOLLARS each, for all of us. Every baby in a pram or bum pushing a shopping cart, every dishwasher and dentist, every bookie and banker (if thats not the same thing)
….Happy Thoughts!
September 22nd, 2008 at 2:38 pm
Using the $700 billion, the US could effectively purchase the following companies at their current market caps:
American Express
Citi Group
General Motors
JP Morgan Chase
Morgan Stanley
Wachovia
Goldman Sachs
Bank of America
Ambac
Washington Mutual
Wells Fargo
September 22nd, 2008 at 2:43 pm
WHAT’S THE RUSH???
One model of what could potentially happen if we do nothing is Japan. No question that economic growth there has been sluggish for the last 18 years. But there hasn’t been a twelve month period over which any economic disasters have occurred.
The point is, there is no rush here. If this is such a good idea now, it’ll still be a good idea next year. We should just try to “muddle through” until at least January 20th.
September 22nd, 2008 at 2:44 pm
guys, how can I short the $$$$$?
thanks
September 22nd, 2008 at 2:44 pm
Paulson as head of Goldman Sachs helped create this mess. As Treasury Secretary he could not foresee the extent of what was coming down the road. Now we are asked to believe that he can foresee what the consequences are in the future and therefore accept on faith that his bailout package is appropriate and necessary. All the while, he still can’t understand exactly what they will buy and how they will do it.
Has Paulson overcome his myopia and become clairvoyant!
Hey Hank, who’d ever believe a Wall Streeter after all this bull crap?
As for the figures Barry, you assume we can and will repay it. The real number is infinity, because we will default as a nation. Remember the bond vigilantes? Their new incarnation will be as empire levelers. Stocks may go to zero, bonds need only go to steep discounts to be the end of an enterprise. These dignitaries may pose as seers, but they are merely little Nero impersonators, fiddling while Rome, ‘er the US, burns.
September 22nd, 2008 at 2:45 pm
Question: I am not naive enough to believe that the government will actually turn a profit on this RTC-like plan, but, isn’t it false to say that the expense will be the full 700 bn or 1 tn or whatever the outlay ends up? I mean, even if the government takes a loss on these securities, what are the odds that the loss will be 100%, 50%, or even 20%?
BR, perhaps you could weigh in.
September 22nd, 2008 at 2:47 pm
It would be easier if… we have inflation at 100% a year.
September 22nd, 2008 at 2:48 pm
Excluding financing costs to sell the debt of course….
September 22nd, 2008 at 2:49 pm
I think Barry should put up a clock to count down the seconds until the debt is paid off. Every hundred years we could meet back here and have a little celebration.
September 22nd, 2008 at 2:50 pm
i like to think of it like this. if i spent $1000/second, it would take me 30 YEARS to spend $1,000,000,000,000. One trillion dollars.
if any of the ladies i hang around with could get $1000/second for their time, they would be pleased. they would also be far more deserving of it than these skanks in finance.
September 22nd, 2008 at 2:51 pm
The assets are worth nothing? If that’s the case, your ‘modest proposal’ is a loser as well. Real estate prices won’t grow to the sky nor go to zero. The cure for the real estate asset bubble-pop is time. Liquidity and a market for this stuff is what’s needed now. Time will take care of everything else.
September 22nd, 2008 at 2:56 pm
david, so many ways to bet against the dollar but the safest are probably to be long oil and gold. (wait for a pullback!)
other ways are UDN (but it’s just run up and is approaching overbot) which is the dollar short etf, or going long other currencies you like. FXY is the yen, FXE is the euro, etc….
September 22nd, 2008 at 3:06 pm
Ditto the above. Gold is going to go a lot higher. Wait for the pullback and load up.
September 22nd, 2008 at 3:09 pm
Here are the numbers with Paris Hilton, noted celebrity.
Give her seventy five years to go.
75yrs = 27,394 days = 657,450 hrs = 39.45M minutes = 2.367B seconds
1T / 2.37B sec = $422.51/sec, difficult even for her to spend or waste.
September 22nd, 2008 at 3:14 pm
I took a slightly different approach to making this concrete, using weight.
First, 700 billion dollars in grams works out to be 771,618 tons. Measured in ships, that’s about 7 1/2 of our largest Nimitz-class aircraft carriers (e.g. USS Ronald Reagan).
For comparison with egregious CEO pay, let’s use 210,000,000 dollars (I call it the ‘nardelli’, for what Robert Nardelli received when leaving THD). This works out to be about 231.5 tons, or perhaps 6 PT boats (‘McHales’?).
So the credit limit being requested is roughly 3333 nardellis.
Of course we’d have to get into micro-nardellis to start discussing matters relevant to us, but I’ve really got other things to be doing, so I’ll sign off here.
September 22nd, 2008 at 3:22 pm
Yes,
it should be corrected to 3 Millenia.
Millennium Falcon.
September 22nd, 2008 at 3:32 pm
Where’s Waldo? I mean where’s Ben Bernanke? I’d have thought he’d weigh in and give a rough thumbs up or down on the idea.
September 22nd, 2008 at 3:47 pm
Well, at least everyone’s going to get free health care once Obama gets in.
September 22nd, 2008 at 3:49 pm
Oh, but Barry, Bazooka Hank believes in a strong dollar. He said so.
September 22nd, 2008 at 3:52 pm
Actually, this is all rather refreshing. There are many of us who have wondered since 2002 how this make believe finance could continue. Now that even the news media admits there is a problem we are starting to get some truth and healthy doubt on anything politicians say. No more “how dare you question our illustrious opinion?” horseshit.
Hey, folks, the signs were all there: super size mega
corporations, super tall buildings, super size meals and super cruel apologists for hubristic mind sets that seek alpha while promoting (not just ignoring) poverty of the masses through predatory business practices. Anyone with half a brain and a smidgen of humility could see what was coming.
Okay, so we are there. What now? Here’s my advice: Whenever somebody (ANYBODY) tells you we have to do this or that right now, ignore them. Don’t argue. Don’t give them the finger. Just ignore them. Let them yell and scream till they get hoarse. Wait for them to de-cramerize and become civil and humble. Then maybe we can have communication. Until then, let the system freeze, look around you and help those in need in your community. If we all do this, things will gradually improve.
If you can’t pay all your bills, pay the ones you can pay and deal honestly with your creditors. Don’t bang your head against the wall for money. It’s stupid. You are more than the money you make or lose.
September 22nd, 2008 at 3:54 pm
Bush and Congress compromise on bailout plain . Sounds like the Dodd plan . I assume that this is still a 1T + slap in the face for the US taxpayer (and future generations). Time to start calling again.
http://biz.yahoo.com/ap/080922/financial_meltdown.html
September 22nd, 2008 at 4:10 pm
DL’s first comment is a great point- I think the Treasury Dept. has scared the crap out of Senators who wouldn’t know the difference between a CDO and a CFO. I also don’t think that every bank in this country is filled to the top with bad assets – yes many are as we know there are many that actually acted like banks over the last 5 years and have strong balance sheets.
September 22nd, 2008 at 4:11 pm
$700 billion is seven times the number of stars in the galaxy.
“There are 100,000,000,000 stars in the galaxy. That used to be a huge number. But it’s only a hundred billion. It’s less than the national deficit! We used to call them astronomical numbers. Now we should call them economical numbers.” — Richard Feynman, physicist, Nobel laureate (1918-1988)
September 22nd, 2008 at 4:11 pm
Alex – the gov’t should totally buy all those companies, then they could sell it to the citizens and at least some money control would be back in the hands of the people.
September 22nd, 2008 at 4:21 pm
The pullback in gold happened in the last month and may have ended. There will be another but at what level? Would not wait too long.
September 22nd, 2008 at 4:21 pm
What if the bailout plan and Goldman/MS is not intended to simply prevent a market collapse… but rather to prepare for a market collapse that is seen to be a near certainty?
September 22nd, 2008 at 4:32 pm
I can not add much to the economic discussion, but I do have one pertinent idea. How about on Nov. 4th we all remember this and vote out every incumbent politician………regardless of party affiliation.
I also hope someone composes a list of all the guilty people in government and banking who brought on this mess.
September 22nd, 2008 at 4:51 pm
>Want to get a sense of exactly how expensive the Paulson Plan is?
Don’t worry guys! Uncle Henry got us a really good interest-only loan with a low introductory rate! Now, nothing can ever go wrong =)
HCF
September 22nd, 2008 at 5:15 pm
Here’s a way to expalin what a trillion dollars is so us common guys can understand.
If you spent a million dollars a day since the day Christ was born, you would not yet be reaching a Trillion dollars. You’d be around $733 billion (2008 yrs, 365 day/yr =732,920 days times 1 million/day)
It’s just a coincidence that Hankie asked for just about this amount.
September 22nd, 2008 at 5:21 pm
TRILLION, SHMILLION!
Lets just stick to the 700B that I’m gullible enough to believe!
Barry, I’ve been asking around, and I was wondering…
What happened to the happy talk? Why is the sky suddenly falling on this economy that’s been doin’ fine …and doin’ great …facing challenges, but getting stronger? Why is Wall Street and Washington panicking all of the sudden? …all the F-in’ sudden!
…and more importantly, should I heed the alarm and run for the hills as well? …and by that I mean Capitol Hill with blank check in hand.
On second thought, forget I asked.
…sounds like I’m whining.
Please, if you could, just clarify how much I should keep in my checking account to pay for our collective mess. I really don’t want to borrow from my cash strapped kids or crooked creditors, and I’m guessing that with 124 million other eligible taxpayers and a 700 billion dollar tab it’ll run me about $5,650 or there abouts. I haven’t even cashed in my $600 rebate check so it’ll really only cost me slightly over 5Gs. Great!
So if you could just verify my calculations that would be great because no one else seem to want to.
Your’s truly,
John Q. Taxpayer
P.S. Some more fun with math…
$700B = 9.3M U.S. millionaires x $75,000
$700B = 450B U.S. billionaires x $1.5B
September 22nd, 2008 at 5:23 pm
Here is the BIG PICTURE on the former independent I-Banks… become regular banks now.. after the shitstorm has passed.. go back to the old model (having survived to fight another day)
September 22nd, 2008 at 5:31 pm
And the value of one trillion paid back over three centuries with inflated dollars is . . . ?
September 22nd, 2008 at 6:05 pm
I just don’t get it. Why are we all fixated on calculating this unimaginable cost to us all? The Treasury is not injecting funds to bank balance sheets, it is buying high risk assets at ‘market prices’. Everything depends on how those prices are arrived at, but, in current conditions it is quite conceivable that prices reflect risk of default accurately. In this case the Treasury receives an income from its investments which is certainly higher than their cost of funds and achieves a return of principal plus or minus a smidgeon. In the meantime, we are prevented from sliding into the abyss of imaginings of movement in the slime of the bank vaults….
September 22nd, 2008 at 6:16 pm
Hank loves to spend other people’s money. But, then he has been in the OPM business for so long that he’s never had to spend his own money. If he had to actually work for a living, he’d come down on the side of the American people instead of his cronies. But, of course, thank God we still live in a government with checks and balances. Looks like someone kicked the Congress in the head and woke them up. No unlimited legal authority with no recourse for our wanna be emperor Paulson.
But, au contraire, the dollar is not very likely to implode. The dollar is extremely overbought right now. Don’t confuse the press reporting of correlation with causation. Or, that we will see future inflation.
September 22nd, 2008 at 6:28 pm
The Paulson Plan
Paulson: “Give me all your cash. Now scram!”
September 22nd, 2008 at 7:51 pm
What I don’t get is, why is everybody assuming “he who comes up with the plan, got to execute it”? Isn’t there anybody else, besides the proven liars to run whatever resolution they come up with?
Further since we are so close to elections, why does it have to be one Tzar to run the whole thing? Why can’t it be a Obama-appointed Treasurer, and a McCain-appointed Treasured and a third bipartisan oversight/auditor person.
Also, whoever is responsible should still be not fully free to do whatever he/she pleases. If they don’t want some frivolous law suits as an headache, they should still allow the person be impeached and prosecuted with high treason if he/she is proven to abuse powers.
September 22nd, 2008 at 7:56 pm
Amazing numbers.
We keep dismissing this kind of commitment as no big deal. Eventually, the trillions do add up, though. Absurd, really.
September 22nd, 2008 at 8:56 pm
That’s 32,000 years. Barry, are you a Fed accountant now?
September 22nd, 2008 at 11:16 pm
To all those who oppose this bail out:
This is the time to rise up and have our voices be heard. Stop the financial violence being perpetrated against the American populus.
WHO is willing to join me for a march on the New York Federal Reserve?
Meet-up: Battery Park, Wed. 10am
Contact me: cdmccann@hotmail.com
September 22nd, 2008 at 11:22 pm
Barry -
Better check your math, dude. 1 Trillion seconds is 31,790 years, or 318 centuries.
Thanks for stealing my idea/comment, though.
Matt
September 22nd, 2008 at 11:24 pm
Oh, and in case you care to know where it came from -
http://www.venicesurfreport.com/2008/09/wanna-get-sick.html
September 22nd, 2008 at 11:35 pm
OK, I am over it. I thought it was creative but I give Barry more than enough credit to have com eup woth it on his own, and I know for sure he knows way more than I do.
My apologies and keep up the good work Barry. I am a fan.
Just to show I am not a stupid crank however, original comment is here.
http://bigpicture.typepad.com/comments/2008/09/traffic-update.html#comments
September 23rd, 2008 at 12:04 am
Anybody know how much the federal gov’t spends on ‘traditional’ welfare? I bet the traditional conservative complaint about ‘welfare queens’ sounds even more ridiculous now…..
September 23rd, 2008 at 11:06 am
Let’s not forget that Obama has no economic experience and McCain was Chairmen of the Commerce Committee. Let’s not forget that Obama“policies” are not the same as his “politics.” Just ask the Canadians. Ohio was told one thing about NAFTA but the Canadians were told another. A wink and a nod candidate will not help you were he to become President. He won my party as it’s nominee but I can not support him or the DNC. John McCain tried to bring about regulation on Fannie and Freddie as early as 2005 in a bill he cosponsored which is the “Federal Housing Enterprise Reform Act of 2005″ as well as a follow up letter in 2006. It didn’t even make it out of Dodd’s Banking Committee for which he is the Chairman.
If Dodd/Obama and the Democrats had followed through with the bill or later John Mcain’s letter about trying to get something done this might have been adverted. It’s not surprising though since Dodd, Kerry, and Obama are the top 3 recipeints of campaign contributions from Fannie May and Freddie Mac from 1989 to 2008. I think this speaks volumes.
September 23rd, 2008 at 12:31 pm
While we’re at it Julie, let’s not forget that John McCain and his best economic guru, his favorite for Treasury Secretary, Phil Gramm, were the guys who created the loopholes that the investment banks drove through to create this mess.
Not to mention, John McCain just loves helping out his buddies in the finance industry, buddies like Charles Keating.
That definitely qualifies them as the ones to clean it up, don’t you think?