Figures Don't Lie

Many years ago, my Uncle Wes was listening to a political commentary on the evening news. About halfway through the piece he got up, turned the TV off and told me: "Figures don't lie but liars sure can figure" This Blog is dedicated to setting things right about a few of the numbers tossed around in today's political discussions.

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Location: Bloomington, Minnesota, United States

How old am I? Well, for much of my career, I had a secretary. And, my best secretary could take shorthand.

Thursday, January 29, 2009

Explaining the Banking Bailout

I was going through my morning exercise routine here in Cairo, Egypt this morning and was watching CNN International. A caller had a question for the "financial experts" who promptly blew it!

The question, approximately, was: "I have a mortgage with Bank of America. They have received bailout money - how does this help me?"

The answer, of course, is "it doesn't, directly." But then, the "experts" could have easily explained the whole problem and the bailout like this:

Suppose that a hundred people are lined up out in front of B of A to apply for a mortgage loan like yours. A couple of years ago, all one hundred would have likely been given a loan. The expression was, "If you can fog a mirror, they'll give you a mortgage."

Right now, maybe five or ten of the hundred would get a loan. These would be the people who already have enough money to just pay cash for their house. That's' why this is called a credit crisis.

After receiving the bailout assistance, maybe forty or fifty would get loans from B of A. Credit would be granted more readily.

If the caller has children or friends in the line, this is a big deal.

We hope that not all one hundred would receive a loan - that would just put us back into the problem that got us here.

See? Financial issues are not difficult to explain, you just have to make a little effort. Of course, I left out a lot of control, monitoring and supervision issues. But, I'll just bet the government left them out too.

And those numbers, I used - five, ten, thirty, forty? Those are just wild guesses when a blogger like me states them. In a financial model (a bunch of formulas used in a spreadsheet - see, for example, the Congressional Budget Office) those are called planning assumptions.


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