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Thread: $ 700 billion bailout

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[quote=COOLSPRINGS,325665]A bailout plan worth as much as $700 billion to rescue financial system from collapse was proposed by both American Republicans and Democrats.  During the past weeks, mortgage triggered credit crunch reached its climax with the bankruptcy of Lehman Brothers, the Treasury’s seizure of mortgage finance giants Fannie Mae and Freddie Mac. Banks and investment firms stopped making the loans to each other as they hoarded cash to protect against any sudden liquidity crunch from unknown problems on their partners’ balance sheets.  This plan won support from presidential candidates John McCain and Barack Obama.

Although this plan is obviously a big risk to taxpayer, the federal government has little choice but o provide the assurance to financial market and curb current panic. The plan would allow the Treasury to buy up troubled assets from U.S. –based companies and foreign firms with big U.S. operations.  That means removing the risk from their balance sheet and putting it on the taxpayer.  The government has a much better ability to hold onto that risk for an extended period of time during which the institutions can catch breath and regain stability

Will congress pass the bailout?  The probability of passing the plan is around 80 per cent.  The Treasury has amended its original request to give it authority to buy up not just troubled mortgage assets but other troubled assets.  The subsequent question is by how much those troubled assets are to be discounted; how long the government is going to hold it until it makes profit and how much risk of the taxpayers could take since the funding source of bailout is being put on a bet.  However, although it is not known how soon the bailout will take effects on ending the crisis and how it will work, the message of reducing troubled assets itself will curb current panic sentiments in the financial market and restore the confidence of investors.

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