Will the Emergency Economic Stabilization Act of 2008 Work
April 19th, 2008
Jeff Park asked:
On October 3rd of 2008 the House of Representatives voted 263-171 after the Senate had already voted 74-25 to enact the Emergency Economic Stabilization Act of 2008 and President Bush signed the bill into law within hours. The latest attempt to help the economy grow in what has been one of the largest recessions in the past decades. Without this bill some said that our economy would even fall into a depression. What will the Emergency Economic Stabilization Act of 2008 actually do? This is a question that only time will tell but analyzing the bill could give us some expectations.
700 billion dollars is a great deal of money. However, the problem we are in may be a bit greater than that. The question that arises would be is 700 billion dollars enough money? The answer might be found when we look and see that there are more than 1 trillion dollars worth of mortgage back securities. 700 billion dollars just might not be enough to save us after all. The 700 billion dollars that the bill entitles the Treasury to is not what is available from the start either, the Treasury only will start with 350 billion dollars which could impose an even bigger problem.
The Emergency Act also fails to regulate what the Treasury can actually purchase. They do not just have to purchase residential mortgage backed securities, they could purchase whatever they wanted in a sense. There is also no set prices for which the residential mortgage backed securities will be purchased at. If the prices are set too low some owners may feel the need to hold on to their securities in hope that some day they will rise higher then the offered price. If the institutions do not sell their securities the whole plan in general would fail. If the prices are too high the institutions would rush to sell and if the market continues to fall then taxpayers will be the ones who will be greatly affected. The money that is being spent also is not directly traced. Reports that were supposed to come out 30 days after the bailout bill plan started have not been released yet do to the fact that it took so long to appoint the special inspector. 290 billion have already been committed of the bailout bill into leading banks in the country and that money can not be traced anymore as the banks do not have to state what they are doing with it. Six weeks into the program the inspector general Eric Thorson was quoted in saying “”I don’t think anyone understands right now how we’re going to do proper oversight of this thing.” Without proper oversight this plan could go down hill very fast. This is a pretty important time for our nation and failing to execute this bill one could only imagine the damages it could cause.
Something needed to be done to help our economy out. The bail out bill however, may have been rushed and not fully thought through. Too many people thought that the congress had to act fast and they did, but if they did it in the right way only time will tell. If we look at the history of other systemic banking crisis only 32 of 42 had any government intervention and out of those 32 only 7 of those used a system like this of purchasing bad assets. Even when bad assets were purchased there was also purchase of dividends and stocks. In most cases the purchasing of bad assets only raised the fiscal cost. The Emergency act took 700 billion dollars out of taxpayer’s pockets and put it into the hands of bankers and investors who will probably become even wealthier from this.
If this bailout plan does not work the economy may be even worse of then when this bill was enacted. A great deal of money would be wasted and the economy and government would be back at square one. Maybe the plan should have involved more of the people and institutions at fault. Dividends, bonuses, and such could have been suspended to help put money back in. That was not the path that the United States Government took and now the people will have to sit back and hope that this was not just a big mistake. This bailout plan may end up being more of a help only to the rich and not to the families that are stuck with debt. It will be very sad to see that happen. The Emergency Economic Stabilization Act of 2008 was a socialistic approach to helping the economy out with no guarantee that it would actually do that.
On October 3rd of 2008 the House of Representatives voted 263-171 after the Senate had already voted 74-25 to enact the Emergency Economic Stabilization Act of 2008 and President Bush signed the bill into law within hours. The latest attempt to help the economy grow in what has been one of the largest recessions in the past decades. Without this bill some said that our economy would even fall into a depression. What will the Emergency Economic Stabilization Act of 2008 actually do? This is a question that only time will tell but analyzing the bill could give us some expectations.
700 billion dollars is a great deal of money. However, the problem we are in may be a bit greater than that. The question that arises would be is 700 billion dollars enough money? The answer might be found when we look and see that there are more than 1 trillion dollars worth of mortgage back securities. 700 billion dollars just might not be enough to save us after all. The 700 billion dollars that the bill entitles the Treasury to is not what is available from the start either, the Treasury only will start with 350 billion dollars which could impose an even bigger problem.
The Emergency Act also fails to regulate what the Treasury can actually purchase. They do not just have to purchase residential mortgage backed securities, they could purchase whatever they wanted in a sense. There is also no set prices for which the residential mortgage backed securities will be purchased at. If the prices are set too low some owners may feel the need to hold on to their securities in hope that some day they will rise higher then the offered price. If the institutions do not sell their securities the whole plan in general would fail. If the prices are too high the institutions would rush to sell and if the market continues to fall then taxpayers will be the ones who will be greatly affected. The money that is being spent also is not directly traced. Reports that were supposed to come out 30 days after the bailout bill plan started have not been released yet do to the fact that it took so long to appoint the special inspector. 290 billion have already been committed of the bailout bill into leading banks in the country and that money can not be traced anymore as the banks do not have to state what they are doing with it. Six weeks into the program the inspector general Eric Thorson was quoted in saying “”I don’t think anyone understands right now how we’re going to do proper oversight of this thing.” Without proper oversight this plan could go down hill very fast. This is a pretty important time for our nation and failing to execute this bill one could only imagine the damages it could cause.
Something needed to be done to help our economy out. The bail out bill however, may have been rushed and not fully thought through. Too many people thought that the congress had to act fast and they did, but if they did it in the right way only time will tell. If we look at the history of other systemic banking crisis only 32 of 42 had any government intervention and out of those 32 only 7 of those used a system like this of purchasing bad assets. Even when bad assets were purchased there was also purchase of dividends and stocks. In most cases the purchasing of bad assets only raised the fiscal cost. The Emergency act took 700 billion dollars out of taxpayer’s pockets and put it into the hands of bankers and investors who will probably become even wealthier from this.
If this bailout plan does not work the economy may be even worse of then when this bill was enacted. A great deal of money would be wasted and the economy and government would be back at square one. Maybe the plan should have involved more of the people and institutions at fault. Dividends, bonuses, and such could have been suspended to help put money back in. That was not the path that the United States Government took and now the people will have to sit back and hope that this was not just a big mistake. This bailout plan may end up being more of a help only to the rich and not to the families that are stuck with debt. It will be very sad to see that happen. The Emergency Economic Stabilization Act of 2008 was a socialistic approach to helping the economy out with no guarantee that it would actually do that.