Opinions Continue To Vary As To How Exactly the $700 Bailout Will Be Used

Posted in Foreclosed House, October 29th, 2008 |

Opinions continue to vary as to how exactly the $700 bailout will be used. The original plan was to buy the securities that were backed by the soured mortgages at a rate slightly higher than the current price from the collapsing banks so as to thaw the frozen credit market.

style="margin-left:30px;" title="search foreclosures" width="499" height="86" class="size-full wp-image-1669" />

Then it was said that $250 billion would be spent to purchase stakes in the banks. Behind this was the plan that the banks would use the money to advance loans once again. But rumours surfaced that the banks were planning to buy off other banks with this money, pay off dividends, give its staffs a raise and the executives’ bonus. Alternatively the banks would just sit on the money. Insurance companies are now clamouring for a piece of the pie. Automakers too want to chip in despite the fact that Congress has given the green signal to $25 billion loan with low interest for this sector.

Three weeks have passed since the $700 billion bailout plan became law. Till date not a single dollar has gone out.

The officials are mumbling something about helping the foreclosure victims from keeping the eviction wolf at bay.

With the worsening of the situation the government keeps changing its plans. The lawmakers are beginning to realize that the plan is totally different from what the Congress was made to believe by the Bush administration.

By purchasing equity stakes in the banks the Treasury has moved away considerably from its original goals said Senator Richard Selby from Alabama. He is the leading Republican in the Senate Banking Housing and Urban Affairs Committee. He said, “We need to examine closely the reason for this change.” From the beginning he had opposed the bailout.

The focal point of the Emergency Economic Stabilization Act is “troubled asset relief program” or TARP. Critics allege that TARP is being used to cover up matters. The original plan was to utilize the funds for purchasing ‘toxic’ securities whose value had fallen to less than that of the mortgaged houses that were secured. But since the word went around that the governments in Europe were opting for banking business, Henry Paulson decided that America should follow suit and put in $250 billion to purchase stocks in thriving banks to egg on spending. It is a far cry from the laudable reasons of using funds to help the humble foreclosure victim.