Do many of us truly understand the scale of one trillion dollars? The following executives have been called to Capitol Hill to explain what they did with their shares of the $750 billion bailout:
- Mr. Lloyd C. Blankfein, Chief Executive Officer and Chairman, Goldman Sachs & Co.
- Mr. James Dimon, Chief Executive Officer, JPMorgan Chase & Co.
- Mr. Robert P. Kelly, Chairman and Chief Executive Officer, Bank of New York Mellon
- Mr. Ken Lewis, Chairman and Chief Executive Officer, Bank of America
- Mr. Ronald E. Logue, Chairman and Chief Executive Officer, State Street Corporation
- Mr. John J. Mack, Chairman and Chief Executive Officer, Morgan Stanley
- Mr. Vikram Pandit, Chief Executive Officer, Citigroup
- Mr. John Stumpf, President and Chief Executive Officer, Wells Fargo & Co.
The panel was called in by the house Committee on Finance. (You can watch it live at house.gov on February 11, 2009, 10:00 a.m. Eastern.) The House events are more exciting than the Senate, whose members take decorum too seriously to ask direct questions and raise their voices when they don’t get answers.
These guys (no women) are being called in to answer questions about what they did with the $750 billion bailout. Most people don’t really understand what a billion dollars is, let alone a number of billions that equals three-quarters of a trillion dollars. Let me try to bring it home.
Most people know what a million dollars is – it’s been popularized in TV programs like "Who Wants to be a Millionaire?" and "Joe Millionaire". Most state lotteries have minimum prizes of a few million dollars. Angelina Jolie and other very popular actors reportedly receive $20 million for making one movie. Blockbuster movies can have more than $100 million in ticket sales on a good opening weekend. There are about 130 million housing units (homes, condos, trailers, etc.) in the U.S. The population of the US is a little over 300 million. We’re working our way up to $1 billion if we think of $3 or $4 per person. $1 billion is about equal to the annual income of 16,555 Americans. The entire population of Nebraska earns about $120 billion in a year. The population of California would earn about $150 billion in a month.
The U.S. Treasury and Federal Reserve paid $150 billion for an 80-percent stake in American International Group (AIG) in a bailout announced on September 16, 2008. On September 22, just days after receiving this bailout, AIG spent $443,000 on a spa outing at the luxurious St. Regis Resort in Monarch Beach, California, including $23,000 in spa treatments. AIG visited the Hill on October 7, 2008 where its CEO defended the spending as “necessary to maintain business.”
When they left the Hill, they threw a second party for themselves at another luxury hotel, this time $86,000 at a New England hunting retreat. They canceled 160 events after Congress and the press complained, but they still went on to spend $343,000 on a three-day event at Arizona’s Pointe Hilton Squaw Peak Resort in November. This time they made sure there were no AIG signs on the premises – three months later I still can’t figure out why no one is in jail for fraud.
Treasury, so far, has refused to tell us where much of the money went, beyond paying for pricey canapés and comfy beds. Not surprisingly, Fox Business Network ran a half-page ad in USA Today on February 3 to announce that they “sued the Treasury and the Federal Reserve” to find out where the TARP and FRB-NY money went. The Senate is considering subpoenas to get Treasury to tell them where it all went. Talk about imperial government!
Let’s keep going, because the numbers get bigger. The Treasury passed out $750 billion in their bailout. Treasury Secretary Henry Paulson and Fed Chief Ben Bernanke said that “The initiative is aimed at removing the devalued mortgage-linked assets at the root of the worst credit crisis since the Great Depression.” (Bloomberg, September 19, 2008.) There were about 3,000,000 homes in foreclosure at the end of 2008.
But who was really being bailed out? For $750 billion you could buy all of them outright and still have more than $100 billion left over to make car loans, student loans, small business loans – or pay bonuses to all the Wall Street and Bank executives in 2008. California had the most foreclosure of any state in 2008 – 523,624. $750 billion would have saved all of them – three times over.
For $750 billion you could buy 3,507,951 single-family homes in the US. That’s equivalent to every home built in the US in 2006 and 2007. You could buy about 3% of all the homes standing today in the US.
$750 billion would buy you 1,524,390 single-family homes in LA County, or 83% of the total. With $750 billion you could buy all the land in private hands in Los Angeles County (but not the buildings on it) and still have enough left over ($185 billion) to buy all the buildings and structures in Los Angeles city.
Now, Congress is working on a stimulus package that is approaching $1 trillion. Not to rush you through the math, but if you got this far, then you are already three-quarters of the way there. Apparently, Los Angeles is $1 trillion: That’s about the value of all the residential, commercial and industrial property in LA County. (Actually, $1.109 trillion, but what’s a hundred billion among friends?)
A stimulus package of $819 billion should give $6,306 to every household. It won’t, of course. But it should.
So what’s my conclusion? This bailout plan has little to do with addressing the root problems of the housing crisis, or helping hard-pressed Americans. It’s about bailing out the big banks and financial institutions from the consequences of their own miscalculations.
NOTE: calculations use median home prices and median incomes. Unless specified as “single-family homes” the housing numbers refer to all units which include condominiums, manufactured housing, apartments, etc.
Susanne Trimbath, Ph.D. is CEO and Chief Economist of STP Advisory Services. Her training in finance and economics began with editing briefing documents for the Economic Research Department of the Federal Reserve Bank of San Francisco. She worked in operations at depository trust and clearing corporations in San Francisco and New York, including Depository Trust Company, a subsidiary of DTCC; formerly, she was a Senior Research Economist studying capital markets at the Milken Institute. Her PhD in economics is from New York University. In addition to teaching economics and finance at New York University and University of Southern California (Marshall School of Business), Trimbath is co-author of Beyond Junk Bonds: Expanding High Yield Markets.