Two Things You Need To Know

There are two things you need to know about the current "bail out".

The first is that the number $700 billion keeps being thrown around, but that's actually not the limit (at least in the initial proposal, no one yet knows what will be on the final version passed). In fact, the $700 billion number is the amount the Treasury Secretary can spend "at one time". In other words, he (or she, we are going to have a new one fairly soon) could spend up to $700 billion now and then next month decide he or she needs another $700 billion, etc...

Second, understand that this $700 billion does not solve all of our problems. There are still lots of people struggling under the weight of predatory loans (up to 80% of whom were given high interest, high risk "subprime" mortgages when they in fact could have qualified for less risky mortgages) who stand to lose their homes as payments swell and interest rates rise on them. And there's the FDIC. According to this article in Bloomberg News, the FDIC coffers are nearly depleated with the failure of the IndyMac bank.

As of June 30th, Bloomberg reports that FDIC had about $45 billion in assets, and is currently projecting $200 billion in insurance payouts by the end of the year. According to the article, FDIC and other failures could cost the government more than $400 billion ON TOP of the $700 billion "bail out". And according to Bloomberg, that number could swell to $2.5 trillion (yes, trillion) if the government decides to bail out investors in accounts which are not officially covered by the FDIC (for instance, the recent promise to cover money market accounts).

So it's quite possible the $700 billion (or whatever value the final plan comes in at) may be just the tip of the iceberg.

Liam.