Bail Out Plan
In the midst of all the chaos that was going on and people’s panic for what their future might be. Treasury Secretary Henry Paulson with help from his two aids had created the Emergency Economic Stabilization Act of 2008 (Wikipedia) also known as the $700 billion bank bailout bill, establishing the Troubled Assets Recovery Program (TARP) (Amadeo). The plan for TRAP’s funds to be used to “purchase CMO’s from commercial banks…The Treasury intended to buy mortgage-backed securities at a discount from banks, which… would induce banks to start lending again since lenders would know where they stood financially and borrowers would no longer have the taint of toxic assets” (The Federal Bailout). Congress had added more things to the TARP, one help homeowners who are facing foreclosure, had to help with loans and adjusting a mortgage term, increase the insurance for FDIC, let “SEC suspend to mark- to market rule” (Amadeo). It had helped bailout banks but not just them there was Fannie, Freddie, and auto companies and perhaps a few other things but the way they were bailout with “A series of taxpayer bailouts…imposed tremendous direct and indirect costs on our society and set a poor precedent on how to deal with future crises” (Peirce). It’s great that many companies were bailed out and are still around now but it’s only possible through taxes. In reality this is only a temporary solution for the time being. When it was first getting established the bill was rejected by the House of Representatives but accepted by the Senate. The chances of the House letting the bill pass look every unlikely they “re-introduced the proposal by attaching it to a bill that was already under consideration” (Amodeo). They were successful and had also managed to get it approved and legalized by Bush. Even though like Peirce had said that it just brought some serious costs to society. It was necessary for to stabilize the situation, like this the scenario of a patient. “While necessary for stabilizing the patient, they have not cured the disease caused by ingesting ‘toxic assets’” (The Federal Bailout). According to Amodeo the government was pretty much had no choice because ease the panic of the investors and the citizens and also to get banks to start lending again. Amodeo goes on to say that Congress knew that they had to act quickly so they could avoid another financial meltdown. So bailing them out was just the lesser of the two evils at that point in time. However, there were risks with the plan, “was that bank sales of CMOs at a loss could lower bank capital below the levels mandated by regulation, requiring the government to close banks” (The Federal Bailout). Banks that knew of this risk weren’t so keen to gamble on that risk and some didn’t want to have the image of being desperate causing their customers to become panicked. Perhaps it might have been necessary but perhaps not the best course of action, because this can set how future crisis are dealt with. With business looking to the government to give them money (Peirce). It was a flawed plan but at least it had helped to stop the crisis from being more disastrous then it was.
In the midst of all the chaos that was going on and people’s panic for what their future might be. Treasury Secretary Henry Paulson with help from his two aids had created the Emergency Economic Stabilization Act of 2008 (Wikipedia) also known as the $700 billion bank bailout bill, establishing the Troubled Assets Recovery Program (TARP) (Amadeo). The plan for TRAP’s funds to be used to “purchase CMO’s from commercial banks…The Treasury intended to buy mortgage-backed securities at a discount from banks, which… would induce banks to start lending again since lenders would know where they stood financially and borrowers would no longer have the taint of toxic assets” (The Federal Bailout). Congress had added more things to the TARP, one help homeowners who are facing foreclosure, had to help with loans and adjusting a mortgage term, increase the insurance for FDIC, let “SEC suspend to mark- to market rule” (Amadeo). It had helped bailout banks but not just them there was Fannie, Freddie, and auto companies and perhaps a few other things but the way they were bailout with “A series of taxpayer bailouts…imposed tremendous direct and indirect costs on our society and set a poor precedent on how to deal with future crises” (Peirce). It’s great that many companies were bailed out and are still around now but it’s only possible through taxes. In reality this is only a temporary solution for the time being. When it was first getting established the bill was rejected by the House of Representatives but accepted by the Senate. The chances of the House letting the bill pass look every unlikely they “re-introduced the proposal by attaching it to a bill that was already under consideration” (Amodeo). They were successful and had also managed to get it approved and legalized by Bush. Even though like Peirce had said that it just brought some serious costs to society. It was necessary for to stabilize the situation, like this the scenario of a patient. “While necessary for stabilizing the patient, they have not cured the disease caused by ingesting ‘toxic assets’” (The Federal Bailout). According to Amodeo the government was pretty much had no choice because ease the panic of the investors and the citizens and also to get banks to start lending again. Amodeo goes on to say that Congress knew that they had to act quickly so they could avoid another financial meltdown. So bailing them out was just the lesser of the two evils at that point in time. However, there were risks with the plan, “was that bank sales of CMOs at a loss could lower bank capital below the levels mandated by regulation, requiring the government to close banks” (The Federal Bailout). Banks that knew of this risk weren’t so keen to gamble on that risk and some didn’t want to have the image of being desperate causing their customers to become panicked. Perhaps it might have been necessary but perhaps not the best course of action, because this can set how future crisis are dealt with. With business looking to the government to give them money (Peirce). It was a flawed plan but at least it had helped to stop the crisis from being more disastrous then it was.