Friday, December 12, 2008

Perspective on bailout, subprime mortgages and credit default swaps

Here's a little diagram that gives perspective to the size of the bailout(s) in comparison to the total value of all subprime mortgages, all mortgages, and credit default swaps:

It's amazing to behold, isn't it? The bailouts could have purchased 2/3 of all U.S. mortgages. If home owners could all just refinance for 1/3 of their mortgage value, that would leave home owners with a ton of disposable income to spend, thereby spurring the economy in a truly big way. (We, for example, would buy two new cars and re-do the kitchen.) Of course, the true cost of the bailout is impossible to know at this point since some of it is loans that will be repaid (maybe).

I used the following sources for the amounts in the chart:
Bailouts: $1-$7 trillion
Auto industry bailout requested: $14 billion (Dec. 12, 2008)
Value of subprime mortgages: $1.3 trillion (March 2007) (MSNBC)
Value of all U.S. residential mortgages: $11.1 trillion (3rd quarter 2008) (Federal Reserve)
Value of credit default swaps: $62 trillion (September 2008) (Newsweek)

Update: Tally on bailouts by CNBC says the bailout total so far is $7.3 trillion.

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