Our financial system is crumbling this week.

[Hungary Jack]

What does average cost per household tell you, though?

Considering that Joe Taxpayer is on the hook for Fannie's and Freddie's obligations and losses on loans purchased that end up delinquent, this figure tells us quite a bit. It tells you what the cost is on a per-household basis.

For example, Fannie and Freddie hold roughly $3 T in mortgages. Say 10% default. That is $300 B in bad mortgages that the taxpayer must cover. Assuming 120M households in the US (rough estimate), that is $25,000 per household. Assuming 2.5 persons / household, that is $10,000 per head in eventual tax bills each household must foot to pay for this mess.

This doesn't even cover the $150B+ B in AIG and the roughly $600B in additional TARP money that might be at risk. During the RTC, the government recovered 70 cents on the dollar. If we are so lucky this time around, the bank bailout will cost roughly $225B in addition to whatever Fannie and Freddie saddle us with.

[ghostrunner]

What does average cost per household tell you, though?

Considering that Joe Taxpayer is on the hook for Fannie's and Freddie's obligations and losses on loans purchased that end up delinquent, this figure tells us quite a bit. It tells you what the cost is on a per-household basis.

For example, Fannie and Freddie hold roughly $3 T in mortgages. Say 10% default. That is $300 B in bad mortgages that the taxpayer must cover. Assuming 120M households in the US (rough estimate), that is $25,000 per household. Assuming 2.5 persons / household, that is $10,000 per head in eventual tax bills each household must foot to pay for this mess.

This doesn't even cover the $150B+ B in AIG and the roughly $600B in additional TARP money that might be at risk. During the RTC, the government recovered 70 cents on the dollar. If we are so lucky this time around, the bank bailout will cost roughly $225B in addition to whatever Fannie and Freddie saddle us with.

I just meant in terms of understanding the amount. I agree that's useful in figuring out what we'll pay, and maybe that's what Arthur meant.

[Arthur Dent]

They write this:

It means that every second, Freddie Mac lost more than two weeks worth of the average American's income.

but a lot of large businesses have lost lots of money before.

Exactly. That's an extremely bad comparison. In fact, it is actively misleading. Freddie Mac is way bigger than your average household, so comparing its losses to that of a single household is incredibly stupid. Something like what HJ wrote is useful if it's updated with real figures. $xx,000 of potential taxpayer cost per household is something real and meaningful. To show what it means to Freddie as an entity, they could give it as a percentage of their assets. $25 billion by itself isn't going to mean anything to the vast majority of readers.

[TimeForGuinness]

What does average cost per household tell you, though?

Considering that Joe Taxpayer is on the hook for Fannie's and Freddie's obligations and losses on loans purchased that end up delinquent, this figure tells us quite a bit. It tells you what the cost is on a per-household basis.

For example, Fannie and Freddie hold roughly $3 T in mortgages. Say 10% default. That is $300 B in bad mortgages that the taxpayer must cover. Assuming 120M households in the US (rough estimate), that is $25,000 per household. Assuming 2.5 persons / household, that is $10,000 per head in eventual tax bills each household must foot to pay for this mess.

This doesn't even cover the $150B+ B in AIG and the roughly $600B in additional TARP money that might be at risk. During the RTC, the government recovered 70 cents on the dollar. If we are so lucky this time around, the bank bailout will cost roughly $225B in addition to whatever Fannie and Freddie saddle us with.

Why is any single entity holding 3 trillion dollars in mortgages?

[Leroy]

Why is any single entity holding 3 trillion dollars in mortgages?

ACORN.

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