Let’s start with the fact that the median US income last year was $50,233 dollars. Now lets add to the fact that the plan of Treasury Secretary Henry Paulson's $700 billion dollar to stabilize the banking system, that every man, woman and child in the U.S. would be owing more than $37,000 each.

This puts the situation in simple context.

Let’s put it another way, approximately 73% of the median income will be needed for this plan. It is beyond obvious that we are going to be paying this off for a long time, and quite obviously our grandchildren.


Henry Paulson’s plan may push the national debt to the highest level since 1954 and possibly causing a diminished demand from foreigners for U.S. bonds as well as potentially other assets. Why would foreigners still be attracted to U.S. assets? How about a worse question will US investors still be attracted to US assets?

Again it seems pretty clear that this $700 billion dollar plan can cause a jump in interest rates prompted by the glut of additional Treasuries needed to finance the plan. Needless to say the dollar has been weakening against the euro and many other currencies.

How can this be a good way to get out of our current economic debacle!

Let’s put it yet another way, Paulson’s plan could drive the debt above 70 percent of gross domestic product and the annual budget gap to an all-time high, possibly exceeding $1 trillion next year. The US is not the only one in this party, just look at several other developed nations have debt levels far higher than that of the U.S such as Japan at 196 percent of GDP and Italy at 104 percent of GDP. Can you imagine if we ran our personal businesses this way…or ran our households in this manner?

The irony is that Paulson said it is ``Difficult to determine'' what the ultimate cost of the plan would be, though he said the objective is to minimize the cost to taxpayers.

Supposedly the money for the Paulson plan will go to buy assets at prices that are depressed. It is unknown what prices the Treasury would pay for them.



Is it possible that these assets could increase in value when the credit crisis ends??

Can the Fed make money doing this? Will the taxpayer ultimately profit?

Your guess is as good as mine- but a point in history was the bailout of Chrysler Corp the taxpayer did profit



Andrew Abraham

My Investors Place a social networking site for investors



capitalinvestor1836 - my personal blog

Many people, I believe, have got the wrong end of the stick on this bail out. To lose all of the proposed $700bn every mortgage within these instruments would have to fail. Can't see it myself.

I am not sure they will make money on them, but I believe it will a close thing.

Also, if this bail out had not happened it would be a lot worse for the US. Credit would dry up, many would lose their homes through losing their jobs and the US government and the taxpayer would be paying probably more money out in social security etc etc. The blame here is not just on greedy investment bankers. People who took out loans and lied about their income to get in on the bonanza are equally to blame for the current crisis. Traders understand the risks of leverage, unfortunately a lot of property speculators did not.

I think they need strict conditions on the bail out, though - it's one thing to buy out the CDO's, but they need to stop foreclosures I think, and that means forcing mortgage agreements to stay open, even in arrears. 2c.