Brett Arends wrote this terrific article for the WSJ.com analyzing the true cost of the $700 billion bailout. Based on his analysis the true cost of the bailout is equal to, “one-third of 1% of our annual gross domestic product.”
I strongly believe we need to get this bailout done. Here is a link to my rate update today where I also try to put the cost of the bailout in perspective.
In my view the costs of not doing the bailout far outweigh the cost of doing it.
Pricing on rates is moderately worse again this morning.
In terms of mortgage rates we still believe that over the course of the next couple weeks we’ll see mortgage rates move lower. Working in favor of mortgage rates are technical trading patterns and the spread between 30-year treasury bonds (4.35%) and 30-year mortgage-backed bonds (5.30%) which are both backed by the US government. We expect these two rates to converge over time.
The big news of the day is the failure of Washington Mutual and the question as to whether or not the Federal bailout plan will pass. Watch today’s you tube video for commentary.
Cost of $700 billion in perspective:
Current US National debt: aprox. $9.8 trillion
US National Debt with $700 billion: $10.5 trillion
Current US GDP: aprox. $14 trillion
% of national debt (with $700 billion) to GDP: 75%
Other instances/ countries of developed countries having debt-to-GDP ratios that are higher:
US: % of national debt to GDP in 1940s: 110%
Italy: % of debt to GDP (2003): 106%
Japan: % of debt to GDP (2003): 154%
Canada: % of debt to GDP (2003): 77%
Current Outlook: near-term neutral, long-term floating
What is the #1 sign that the bailout will work? How about this article in the WSJ which reports that Warren Buffett has reached an agreement with Goldman Sachs to buy $5 billion in preferred stock?
This give me confidence that this plan will make things right for our financial system.