Political environment that led to Economic concerns, at first, during October 2008 was aimed at bailing out securities, which was under the tremendous repercussions of defaulting and was mortgaged backed.
Five descriptive features of bailout and stimulus bills during October 2008 to February 2009 in the USA.
The necessity of the bills for bailing out and stimulus
A record $140 billion was being withdrawn from the money market accounts. Usually money market is considered as the safest place for investments. At that time investors were shifting their funds towards US Treasuries, as a back drop, the yields were coming down to zero. On the other side, the panic was triggered by the treasury by ensuring the funds for a year. The fire was further fueled by SEC by banning short selling of stocks (financial) until October 2 as a measure of volatility in the stock market.
The government had to buy these bad mortgages due to banks’ skepticisms to lend to each other banks. The event jacked up LIBOR rates to be touching astounding height surpassing the rates of Fed funds and that brought down the stock prices to a very low level. So, naturally the financial firms encountered bumps to sell their debts.
Since the firms were not in a position to raise funds under these circumstances, they were in danger of becoming bankrupt; the example was Lehman Brothers, Bear Stearns and AIG, who all could not survive without the intervention of the Federal Government.
The resultants
The Congress had to brainstorm the Ps and Qs of this before massive intervention could take place.
All the political leaders were in one tune with protecting the taxpayers; they also did not want to see the business to go off the hook due to any bad decision.
Most of the leaders in the Congress went ahead to act swiftly to recur any meltdown due to the situation.
The fear went on breeding further fears as the banks were skeptic to make their bad debt in public, to avoid being downgraded in the ratings of bad debts, which could invariably bring down the stock price in the market, disabling them to raise capital and ultimately leading to devastating bankruptcy.
As the banks were bent upon avoiding the disclosures a panic erupted, fuelled by rumor all over, that led to locking up credit market.
It was $350 billion bail out package sanctioned by US Congress at the time of outgoing President Bush, out of $700 billion; the remaining half was kept saved for the incumbent President Obama to take office in 2009.
The new president Obama did not use the TARP funds for continuing with the bailing out the banks. He launched $787 billion Stimulus package instead, and Bank stocks were bought by the government by purchasing the stock during slump and to be sold when the market goes up.
The bill was the obligation for the president to develop a plan for recouping the possible losses by the financial industries.
The good sides up to 2012
Banks could repay $292 billion of Tarp fund by 2012; the $120 billion are to be refunded yet. Banks had used the funds for helping the HARP program which was aimed at helping the home owners, who were on the verge of facing foreclosure.
Although there was a massive protest in the name of Tea Party, as was experienced and reported time to time by many, the condition was completely changed by different political hues in course of time, as was initiated as the ‘bail out” and ended with “stimulus package’.
References:
1. Amadeo K. (2008). Was the global financial crisis of 2008? 5 June 2012. Retrieved from web. http://useconomy.about.com/od/criticalssues/f/What-Is-the-Global-Financial-Crisis-of-2008.htm
2. Litvan L. (2008). Bank-rescue plans wins approval as house reverses vote (update 5). 3 October 2008. Retrieved from web. http://www.bloomberg.com/apps/news?pid=newsarchive&sid=avAdOCkxaTA0&refer=home
3. Amadeo K. (2008). Could the mortgage crisis and bank bailout have been prevented? 5 June 2012. Retrieved from web. http://useconomy.about.com/od/criticalssues/a/prevent_crisis.htm
