The bailout of American financial system is technically called the Emergency Economic Stabilization Act of 2008. The law governs the subprime mortgage crisis which authorizes the United States Secretary of the Treasury in order to spend over $700billion to buy distressed assets particularly in mortgage-backed securities while directly supplying cash to bank companies. The money for purchasing distressed assets was generally forwarded to bring in capital into these bank companies as well as other economic institutions.
On the other hand, the Treasury pushed to scrutinize the value of besieged asset purchases. Both domestic and foreign banks are in fact involved in the said program to achieve better outcomes. This Act is actually proposed by Henry Paulson, Treasury Secretary, during the 2008 worldwide financial crisis which was signed as a law on the 3rd of October, 2008 by Bush. This legislation originated from the recapitalization plan of America’s financial system in order to boost economic growth in the US.
What’s the Purpose of 2008 Bailout?
The main objective is to pay for approximately $500billion in troubled assets gained from financial companies. Hence, the proposal was presented to the US House of Representatives purposively to purchase bad assets while restoring confidence for credit market and eliminating uncertainty concerning the remaining assets’ worth. Over time, the bill expanded into an amendment with regards to HR 3997. However, such amendment was rebuffed by 205-228 votes standing among the House of Representatives.
The senate further debated the bill and voted for HR 1424 that surrogated the lately revised account of the Emergency Economic Stabilization Act of 2008. Luckily, the Senate finally decided to accept the bill and they immediately passed the amendment with 74-25 votes. Meanwhile, the supporters of this bill disputed that market intervention is significant in preventing further attrition of US credit markets’ confidence. Such failure will only generate economic depression according to them.
How Did It Survive the Public Scrutiny?
Opponents, however, objected the rapidity and cost of the plan while directing to polls which presented little support from the bailing out as the investment banks of Wall Street claimed that there will be better options which aren’t considered. When it comes to credit assets purchases, the key part in the said proposal made by Paulson is the plan of buying $700billion illiquid mortgage backed securities or MBS. The main purpose is to simply augment the secondary mortgage markets’ liquidity.
The plan may be described as precarious investment in opposition to expense. The original government funds’ outflow is to buy MBS through constant cash inflows embodied by monthly credit compensations. Consequently, the underlying principle of the 2008b bailout is best expressed by the following key points:
- Stabilization of the economy
- Improvement of liquidity process
- Obtain comprehensive strategy
- Significant and immediate program for asset relief
- Broad impact on asset purchase programs
- Provide more confidence to investors
- GDP and economic impact
With the authorization of the bill to establish such program for buying troubled assets, more and more citizens are taking advantage of the outcomes produced by Paulson’s 2008 bailo