Duncan Green, the Head of Research for Oxfam GB has a blog post up today in which he puts the $700bn of the Paulson bailout plan into perspective:
- Would clear the accumulated debt of the 49 poorest countries in the world ($375bn) twice over
- Is almost 5 times the annual amount of extra aid needed to achieve all the Millennium Development Goals on poverty, health, education etc ($150bn a year)
- Is about 7 years of current global aid levels ($104bn in 2007)
- Is enough to eradicate all world poverty for over two years (UNDP calculates it would take $300bn to get the entire world population over the $1 a day poverty line).
As much as I agree that some of our priorities in foreign aid are very messed up indeed, can we please stop using this silly $700bn talking point?
$700bn will not – in all likelihood – be the total cost of the bailout to the taxpayer (which is why the over $3,000 per citizen is equally silly). It is the total amount of money the Treasury may use to take distressed assets off the banks’ backs. The only situation in which the cost to taxpayers will be the full $700bn is if every single asset the Treasury buys turns out to be worth absolutely nothing, i.e. in case none of the cash flows to which the asset gives the holder ownership materialize. And as bad as the current crisis is, this just isn’t very likely.
In all likelihood the losses to the taxpayer will be far, far less than the full amount. It is even conceivable (though perhaps not very likely either, depending on how exactly the Treasury determines the prices it will pay for various derivatives that haven’t been traded for weeks now) that Treasury will make a profit on its ‘investment’.