Saturday, October 18, 2008

Bank Telethon

Here's an interesting way to think of the $250,000,000,000 equity injection into America's banks:
Imagine an announcer came on TV and said, "Welcome to the 2008 Bank Telethon. You've heard all the horror stories. Now, with the holiday season approaching, I know you'll want to reach deep into your pockets to lend a hand."

"I know what you're wondering: How much should I give? Well, the banks need $250 billion. I know—that sounds like a lot of money to raise in just one telethon. But if each household in America gave just $2000, then we could reach our goal. So let's get every household in America to pledge $2,000 to the banks so that they can start lending again."

If that were the announcer's pitch, would you give the $2,000?

Guess what. You just did.
There's one thing very wrong with this description. We did not give $250 billion to the banks, we invested that money in the banks—and against the banks' will in some cases. A better description would be if every American household bought $2000 in newly issued bank stocks.


  1. solid analogy, thank you.


  2. No, we gave them more money so they could write off the bad debts and thats just the beginning as there will be a lot more write offs to come.