There’s been a lot of debate and dissension over the proposed $700 billion bailout package. It seems that the two main points of contention are around whether the bailout is needed and whether or not the US taxpayer should be left holding the bag.
NPR published a good segment last week that explains why the Fed is so concerned about the potential risks to the credit market (audio). In a nutshell, the credit markets were (and are) at risk of freezing up; and when they do, it will be very difficult for businesses of all types to obtain the operating capital they need in order to remain in business. The argument is that without the bailout, the overall economy is at risk of cratering; including the jobs that those businesses support.
But will the bailout work? If history is any indication, then it’s possible that the plan will not only work, but will end up costing taxpayers well less than $700 billion. It turns out that Sweden went through a similiar banking crisis back in the 90’s; and the current bailout proposal shares a number of similarities with Sweden’s plan, including the acquisition of equity in any companies that are assisted. Ultimately, Sweden’s economy recovered; and they were able to realize a return on the assets they acquired. They estimate that the final cost was close to nothing, or up to half the original cost, depending upon how the rate of return is calculated.
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I think it ...
depends on what we are looking for. In the very short term it may relieve the symptoms. In the long run I think it's a bit like making a junkie's symptoms go away by giving him more drugs.
"I think it's a bit like
"I think it's a bit like making a junkie's symptoms go away by giving him more drugs."
Agreed. Done incorrectly, it could just gloss over the root cause...In order to affect real change, additional steps will need to be taken to prevent this from happening again.