Tuesday, September 30, 2008

PSA: The $700 Billion Bailout Wasn't $700 Billion

You Will Never Get This! (c) Borat

By now you've all heard that the $700 billion bailout plan was defeated at the House yesterday.

But what you probably don't know is that the bailout was similar to a football contract in that the guaranteed amount was entirely different than the alleged value of the entire contract.

For example, when Nate Clements from the San Fransisco 49ers signed an $80 million deal in 2007, it was repeated ad nauseum because $80 million sounds fantastic. But in reality, he's only going to make about $22 million because the most of the money in the contract was back-loaded on years that he's never going to get paid for.

Same thing with the "$700 billion bailout."

This is a key tidbit from an article by Kevin Hall talking about the basic details of the bailout:

Q.Is Congress writing a $700 billion check to Wall Street?

A. No. The money will be disbursed in installments. The Treasury will get $250 billion to immediately begin buying the bad assets. Another $100 billion can be obtained with a report to Congress on the need for it, and the remaining $350 billion will be released only upon congressional action.

So the $700 Billion bailout was really only $250 billion with options for the rest (still a big number, but not $700 billion).

Cue the Music:

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