I’m having trouble understanding this bailout business and I cannot find an explanation anywhere. Apparently a lot of other people are having trouble understanding this as well. My confusion relates to the claim that the problem is due to the foreclosure crisis and that at least $700 billion dollars is needed to fix it.
The total amount of troubled home loans is $112 billion. This at least was the number bandied around over the last year. It was that portion of Washington Mutual’s portfolio that brought it down. The Wall Street Journal this morning reports that Washington Mutual has $30 billion in bad loans that will be written down with the purchase. What are these loans? Are they not home loans?
From published reports just paying off the home loans would have rendered Washington Mutual highly solvent. If the government stepped in and paid them all off, what would we use the remaining $588 billion for?
Furthermore that does not take into account the collateral for the loans. If we were able to recover just one quarter of the amount for which the collateral had been orginally valued, that would reduce the cost by an absolute minimum of $28 billion, leaving a cost to the tax payers of $84 billion. It is likely that more would be recovered so that the actual cost would be around $50 billion.
Either the total amount of troubled home loans is more than six times greater than previously reported or there is a lot going on that I have not been able to find explained.