‘Economic Armageddon’ Awaits if Bailout fails
A $700 billion dollar bailout for the United States economy was passed a few weeks ago on October 3rd; but what is a bailout? And why do we need $700 billion to correct whatever problems we’re facing as a nation? With so much talk about the 2008 economic recession, it’s important that people understand how this crisis got started, what the government is doing to fix it and what the long term and short term effects will be.
Everything was great in 2005 when houses were selling like hot cakes and their values went up every month. Lenders made it easier to borrow money, and the higher demand drove up house values. Higher house values meant that lenders could lend out even bigger mortgages and gave lenders some protection against foreclosures. All of this translates into more money for the lenders, insurers, and investors. During the housing boom, the lenders got voracious, and started giving out loans that people making only $30,000 a year could not pay. Once that monthly mortgage bill came in the mail and these people couldn’t afford to pay it, their house was foreclosed. This occurrence started out small, but eventually got to the point where every month 438 people had their house foreclosed, according to Consumer Affairs.
With all these people having their homes foreclosed, the banks who lent the money in the first place couldn’t recuperate fast enough and eventually, the banks had to file for bankruptcy. This has been the process for a few months now, and finally the government has fully stepped in with the passing of the $700 billion bailout package.
The bailout plan itself is the government buying up all the failed assets of certain banks. This will essentially make the banks break even and will in turn trickle down to the public in the form of a somewhat more thriving economy, a stronger stock market and other benefits.
However, the bailout is no “get-out-of-jail-free” card; it could fail very...