Is the Federal Bailout Plan Enough

September 26, 2008 |  Tagged | Comments Off on Is the Federal Bailout Plan Enough

This past week has not been kind to Wall Street.

Just shortly after the government takeover of mortgage buyer giants Fannie Mae and Freddie Mac, Wall Street entered into a major downward spiral. The investment bank Lehman Bros. declared Chapter 11 bankruptcy, American International Group faced a downgrade, Merrill Lynch was bought by Bank of America, and the Dow Jones plummeted. The financial troubles continued throughout the week, with an $85 billion bailout of AIG and the SEC temporarily banning “short selling” of 799 financial companies. Towards the end of the week, the Federal Reserve Bank has offered to let investment institutions borrow money for collateral since it has become harder for Wall Street investment banks and other financial institutions to obtain credit, as well as lower the interest rate for those special loans.

On Saturday, President Bush, along with the U.S. Treasury Department, announced a proposed $700 billion bailout for Wall Street. This bailout gives the Treasury Dept unprecedented power to buy troubled mortgage-related assets from faltering private financial institutions. This means that the burden to pay for the troubles of the falls on federal taxpayers, at least for now. After buying the mortgages and other bad assets at a below market rate discount from these private banks, the government will retain them until the stock market recovers and hopefully sell to investors for a profit. Along with the bailout plan, the Bush administration has agreed to incorporate mortgage assistance and congressional oversight to appease Congress into signing a bill as quickly as possible. Although the bailout plan seems drastic, administration officials as well as members of Congress seem to think that not taking action could hurt Americans worse in the long run- investments and retirement savings could be at stake.

While it does seem like the federal government needs to step in and help in some way, it’s hard to ignore the large price tag that will cost American taxpayers. Why is it that the government can afford to help out these private financial institutions now, but didn’t set more regulations and protections for homeowners when the mortgage crisis started? There needs to be more protections for the average U.S. homeowner, and less for the executives of big business. Especially if it’s the average U.S. citizen that’s supposed to bail out these corporations. Hopefully the bailout bill that comes to fruition will incorporate more protections for homeowners, and that new regulations will prevent a financial catastrophe like this from happening again in the near future.

Photo courtesy of Flickr user Stuck In Customs.

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