Bernanke warned that a recession might come if the bailout plan did not pass. And as much as I like the idea of the government bailout of Wall Street -- I hate government interference in the free markets, and bailouts can encourage more bad behaviour. It is hard to get a good understanding of the cost of this Wall Street bailout plan. But I ran some numbers that I thought were interesting.
- $700 billion cost of proposed plan
- 305 million estimated number of Americans
- $2,295 estimated cost per American
- 151 million estimated workforce (excludes retirees, kids, etc.)
- $4,635 per working American
- $13.8 trillion estimated US gross domestic product
- 5.1% cost of bailout plan in one year's domestic product
- 13 days each American has to work to pay off bailout plan (5% of a year)
Considering we could be looking at a recession, and the economy normally grows 3% a year, this does not look so bad. A $700 billion dollar bailout would be equivalent to a one-year recession with a negative 2% growth rate. These calculations are a rough estimate of the impact of such a plan and gives one food for thought as to which is worse. So which would you prefer, a recession or a bailout?
Kevin Kersten is an Stock and Options Analyst with InvestorsObserver.com. Disclosure note: Mr. Kersten owns and/or controls a diversified portfolio of long and short positions that may include holdings in companies he writes about.











Reader Comments (Page 1 of 59)
9-23-2008 @ 10:52PM
Jim D said...
False choice.
What's more likely to happen is a bailout *and* a recession. Does that change your calculation?
9-23-2008 @ 10:52PM
notme said...
$4,635/13 days =45 per hr. Time to ask for a raise.
9-23-2008 @ 10:53PM
notme said...
$4,635/unemployed=13.8 trillion days days dumpster diving
9-23-2008 @ 10:54PM
Oak Okleshen said...
Congress and the financial giants got us into this mess by bending the loan rules and allowed money to be loaned to those who could not pay it back. About half of congress and all the CEO''s of the financial giants should be in prison. Each player had larceny in their hearts. Votes from the minority for the congressmen permitting them houses they could not afford, and high risk profits for the financial institutions and in some instances members of congress. The problem is it all ganged up and backfired. Now the bums want Mr. and Mrs hard working taxpayer to foot the bill while the bums line their pockets. Let them all fall on their behinds and eat some crow. They deserve it. no breaks with a bailout-none of them....
9-23-2008 @ 10:54PM
doug said...
How about the people that pays taxes and has lost there homes?
Looks like our good government really cares about em! No one bailed them out! Why bailout the banks? The banks should of had a better deal to help the people keep there homes.
$700 Billion plus Billions more for the war.
Time to replace alot of people on the top!!!
9-23-2008 @ 10:55PM
Peter said...
We will wind up getting both...additionally, a bail out induced recession will be worse.
9-23-2008 @ 10:55PM
Tim S said...
Everyone says we "have to" have it. (The Bailout) and that we may fall to nothing short of a depression if we don't get it. Maybe that is what should happen. We'd all loose what we have, but given the inability of the government to stop spending, it would indeed be justified. There is no reason to believe that their spending will stop and put us into financial oblivian later. This is nothing more than a Band-Aid on a deep cut that requires stitches. This is delaying pain.
9-23-2008 @ 10:56PM
BIGRIG said...
ok,so the taxpayer bails out the jerks on wall street.then it would seem right that since i am now an invester in this stupid scheme,i will take a tax loss when i file my income tax return.how about it?
9-23-2008 @ 11:09PM
Jess said...
This whole bail out plan will in fact not be in the best interest in the public its for the big corprate investors who have their hand in politics and investing, they use both sources for what their tryin to do,The economy will NOT balance out without us falling back under into a depression weve spent to much money to fast. Never the less The U.S government should NOT interfere in the free trade as it should not be in religion, both it does corrupt.
9-24-2008 @ 9:05AM
Jeff said...
All of the "experts" say we "must" have this bailout. I really don't care about what we "must" have at this point. Now it's about the idiots on Wall St. learning their lesson. Without approval, the risky loans wouldn't exist and we wouldn't be in this problem. Who fails more: the sincere student that got the F (homeowner) or the teacher (mort.company/bank) that allowed it to happen? I, for one, have already written my Senators and Reps and told them to shove this bailout where the sun don't shine, or I'm not voting for them next time they come begging to keep their job.
9-24-2008 @ 9:04AM
Steve said...
Do the bailout and the US dollar becomes fu-fu dust. If you want $300 oil, go ahead and do the bailout.
9-24-2008 @ 9:04AM
NoInform8tion said...
$4,635 made in 13 days? Where? Not on mainstreet, try about $7 to $10 per hour with no health insurance and no pension. Wallstreet just doesn't get it, people are losing their houses. People can't pay for food, gas, and healthcare anymore. On mainstreet we're already in a deep recession. This is so frustrating. NO BAIL OUT. Let the free market decide their fate. If we have a depression who cares anymore, we'll eat plants and bugs.
9-24-2008 @ 9:04AM
dk said...
What about these goof ball homeowners. They should be held accountable. If you can afford a neon and you buy a lexus dont expect the rest of us to bail you out. There was a show on foreclosed houses on public television and every house was bigger than mine. Let the banks sell the houses then let these homeowners pay off the difference, then let the money be distributed back to the workers paying taxes for the bail out.
9-24-2008 @ 9:03AM
bk said...
no bail out
9-24-2008 @ 9:03AM
Joyce said...
Bail out the institutions? Are you for real? Why not have all creditors "forgive" the late charges and finance charges for an entire year. What does this do? Put the money back into the American pocket. Now we can afford to spark the economy on our own, without some ridiculous $700B bailout. Imagine that $8,000 in interest I'm paying, per year, on my mtg. I would definitely spend it on home improvements, vacations....etc. We bail out the institutions yet we still have all of our debt? How many ways can we spell SCREWED????
9-24-2008 @ 9:03AM
Therese Vacca said...
Congress was warned by Greenspan that this would happen but they chose not to listen. Yes the democrats: Dodd, Bernanke, and Paulson even though your not a democrat shame on you!! Now we are supposed to bail you out no way. NO BAIL OUT!!! Yes economic growth. Get rid of earmarks, capital gains taxes, cut taxes, drill here, drill now, pay less. Oh yeah one more thing you all need to be fired or resign how dare you play with our money and investments!!!!
9-24-2008 @ 8:21AM
Gary said...
No one is to blame except the Democratic Congress that set up Fannie and Freddie and the Clinton Administration that pushed to lessen the requirements for loans. This helped those who could not afford a home by not requiring down payments, credit checks, credit history, or a work history. What do you expect? Now Shumer and others in Congress want us to bail out these people who can't afford a house to begin with. I say launch a major investigation of how all this happened. The Dems and some Repubs will run for shelter. It makes me sick to hear Dodd and Obama acting so righteous when they are up to this mess to their hairline.
9-24-2008 @ 8:22AM
QuasiVeblem said...
That s it!
The 'theory' of the leisure class is tapdancing on vast but confused layers of neurons of the mass, again!
Its ramifications will reverberate to four corners of the globe for sure and FYI, by the way , that Brooklyn bridge is back in escrow again , last week , thanks to some 'newly-found' sources of creative financing. What a relief ;)-
And our model minority daughters and sons still can get in these Ivy League schools after few phone calls, can t they?
9-24-2008 @ 8:22AM
JR said...
Anyone who loses their home because they can't afford it has only themselves to blame. I don't want them to lose their homes, but let's don't shift the responsibility for their payments to bystanders. As for the $4,635 figure, that is an average. If you earn more than average, or have fewer than average deductions, then you will pay far more.
9-24-2008 @ 8:23AM
undrgrndgirl said...
tell ya what, kevin, since you seem to be so happy with paying your $4,635.00 why don't you pay mine, too...'cos I DON'T HAVE IT...and IF i did, I'd surely use it to, i don't know, buy FOOD !!