Liquidity, also called marketability, is the ability to turn the assets of a company into cash. The United States passed the Emergency Economic Stabilization Act of 2008 which was a seven hundred billion dollar bailout. This allowed the Federal Government to buy assets of failing companies; these were mostly mortgage-backed securities from the nation's banks. At first the bill was only three pages long, but by the time it was passed it was four hundred and fifty one pages. The bailout changed many parts of the economy such as taxes and increases the power of the treasury department so they could buy and insure assets of the failing companies. This buying and insuring of assets is known as the “golden parachute” which is under many restrictions. One of these restrictions is that as long as the “golden parachute” is effect the payments made to the companies are banned from being used by the top executives. The tax deductibility of executive compensation for companies will be cut by almost half then what is set by current laws. (Linkins)
The banks in the United States were going bankrupt and some had already declared bankruptcy. This was mainly caused by bad loan practices by banks across the nation. These practices included giving loans to people who should not have been approved in the first place; this has lead to a rise in home foreclosures during the resent year. These bad loans have created a credit crisis which is the leading of many bank failures across the nation. The effects of these bad practices were not shown until the economic crisis and lead to the banks being the first and most likely to fail during the crisis. (Schoen)