Why $700 Billion?

I figured this out in a moment of clarity, why it is that the Bush Administration is pushing for $700 billion for bailouts. That’s a very specific number for a situation that is not at all straightforward, so why $700B rather than $500B or $850B or $1 trillion?

There is a concept in poker called the “value bet.” When you get to the final betting round, all the cards have been dealt or drawn and now the probabilities have all collapsed into what hand you actually hold. If you are convinced you have the best one, you make the value bet, which is a bet you want called. You are sure you are going to win this hand no matter what, so you want to get your opponent to commit the maximum into the pot. You don’t want to bet too little because then you aren’t exploiting this fully but you don’t want to bet so much as to make them fold because then you get nothing additional. The ability to feel out this number is a key part of the advanced game that the pros work on.

Why is Bush asking for $700 billion? Because he’s got a few more months to try to transfer as much money from the public coffers into the hands of his peers in the privileged “ownership society” class. This is George W. Bush’s real legacy. It’s a value bet.

Update: I knew it. My intuition is confirmed. Thank you, good night.

5 Replies to “Why $700 Billion?”

  1. I agree. The saddest part of this is that it isnt a straightforward bet. Unlike poker, they can have half their bet called. And it is still a gawdawful amount.

    No matter what happens, the Administration is going to own more of our society before it leaves.

  2. I still wanna know why they fire sold WM last night. $188 billion in deposits for $1.9 billion with pretty much no debt or liabilities? I mean give me a break. You can seriously tell me that the US regulator involved didn’t have a stake? Yeah right. They bail Bear Stearns out as an investment bank, but the largest savings and loan, they seize and fire sale.

    Left all of us shareholders (yes, I was one) holding the debt. Ridiculous. And they want us to pay for this $700 billion? The moment I get a chance, I’m shifting my money overseas. F this stuff.

    If these few months don’t say anything to the American public, it should. It’s basically saying…. bend over and take it, cuz we know what’s good for you. I’m sick and tired of idiocy like this. These guys should all be thrown in jail for even allowing stuff like this.

  3. Right on brotha! They’ve been liquidating the Treasury for 7 years now, and this is their sprint to the finish. Note the use of the same legislation-borne-in-crisis tactic they employed for PATRIOT, airline bailout, etc.

  4. I share you’re anger and frustration, Dave, but this isn’t a political poker game begun in 2001. It’s also not just a matter of finding the money to pay a bill. Because when you boil it down, it does not matter whether the Legislative branch or the Executive branch covers the bad debt. It will still be paid for by we the people.

    The real issue is getting Congress out of the high-risk mortgage loan business. Since the 70’s, Congress has been backing loans based on criteria other than sound financial ones. In 1994, Congress EXPANDED the program, as as proposed by the Clinton admin. Of course, there is no problem as long as housing values increase (as they have for most of that time).

    W has brought this problem up to Congress every year, but it’s hard to get any cooperation when the financial committee includes people like Barney Frank: “These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis. The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”

    So while there are political fouls on both sides in all this, they are really –as they say in the NFL– offsetting penalties. We must get Congress out of the Bad Loan Business. Moving oversight into the Executive branch (Dept of Treasury) is a start–one that should only be a very short term one. But at least someone is throwing out some ideas to stop the bleeding. Unlike those of Frank’s ilk who believe the problem lies outside DC.

  5. Buy cheaply. If the government pays, say, 30 percent of what the loans were originally worth, any hedge fund that thinks they are really worth 40 percent will dive into the market. If the government pays 50 percent of what the loans were originally worth, that same hedge fund will stay on the sidelines — or may even figure out a way of betting against the government.
    ——————–
    mikemathew

Comments are closed.