Bailout Plan
The Emergency Economic Stabilization Act of 2008, enacted on October 3, 2008, is a law that gives the United States Secretary of the Treasury authority to spend $700 billion to buy mortgage-backed securities from the banks. The law aims to purchase these so-called bad assets and hopefully restore confidence to the credit market. The law is more commonly known as the “bailout” since it intends to rescue the major financial institutions of the US from the subprime mortgage crisis that had reached its tipping point by September 2008.
The idea was originally conceived by President George W. Bush and Henry Paulson, Secretary of the Treasury. Although it is already approved, the plan met several criticism. The main criticism is its effect on the general economy of the United States. For one, the bailout would mean an increase in the US budget for 2009 which already stands at $3. 1 trillion. This would also mean that the annual budget deficit of the US would further increase and may exceed $1 trillion. The bailout is also criticized because it implies that the mistake made by the banks would now be shouldered by American taxpayers.
Majority of surveys conducted showed that the American public opposed the bailout saying that it was wrong for the government to use taxpayer’s money to save the banks which caused the problem in the first place. It is interesting to note that the proposal was not only opposed by the public but also by economists and investors. Another problem of the law is the assumption that the securities bought by the government may increase in value sometime in the future and could be sold for a profit.
This is a rather big assumption since there is in fact no assurance that it come true. While the bailout may have helped investor confidence and temporarily stop the decline of the US economy, its true effect will likely be felt sometime in the near future. The bailout is still a short-term solution to a possible long-term problem. If the US economy intends to recover from this crisis, it should study the alternatives proposed and see if it is feasible to implement them.
