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Why The Bailout Plan Has To Be Passed And Its Adjustments

1703 words - 7 pages

It is necessary to pass the bailout plan in order to help and stimulate the economy. Not only will it have an impact on the American economy but on global markets as well. Instead of focusing on bailing out failed companies, the plan should center more on homeowners and help them to pay off their debts. By doing this, the bill would help homeowners as well as companies who are in possession of these kinds of troubled assets. Politicians should be less focused on their reelection and more focused on voting for what will be best for their country and the global community.
The government has to pass the bailout plan in order to free up banks and restore some liquidity back to the markets by taking on bad loans. The whole global financial system depends on banks lending from each other. Cash flow can be seen as the grease that keeps the financial system running. It can be compared to a car’s engine. Without any oil and gas the engine will stop running and the car won’t go anywhere. Right now, banks are unwilling to extend credits to other banks which results in the borrowing of money to get more expensive. If the bailout plan is not passed, more banks could fail and the stock market could plummet and erase retirement accounts. In addition, businesses could find it very difficult to get credit. They would be forced to close which will wipe out millions of jobs.
According to the bailout plan, the Treasury Department gets $250 billion dollars to immediately start buying up troubled assets, such as mortgages from banks and financial institutions. If needed, the president could spend an additional $100 billion on the purchase of troubled assets. By buying these assets, the government will be given ownership stakes in companies. Once these businesses get rid of their bad debt and start making profits again, the government would collect part of those earnings. This way the government will collect most of its $700 billion investment back. In addition, not all assets will be purchased. As an alternative, some companies could choose to purchase insurance instead.
However, the bailout plan as of today needs some modifications. Instead of only concentrating on buying bad assets from financial institutions and banks, it should pay more attention to homeowners. The assets that the government plans on buying are mostly impaired mortgages –related assets that have fallen because of the housing sector and knocked holes in firms’ balance sheets. Therefore, if focused on homeowners, this problem can be dealt with from the beginning. It will reinstate up to 80% of the $500 billion already written off by Wall Street as toxic loans. This way, the government will put in $500 billion and instantly get back the $500 billion. It will also refinance 100% of loans, thereby giving banks 100% of value on corresponding securities instead of the 30% to 50% if securities would be sold to the government. Furthermore, refinancing homeowners will stabilize the entire real...

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