The U.S Treasury Secretary Henry Paulson and the U.S Federal Reserve Chairman Ben Bernanke both produced their testimonies on Sept.23 at the U.S Congress prompting Congress to approve the $700 billion 'market bailout plan' inked by the U.S government at the earliest possible date. Paulson stated that financial crisis has escalated to a level that is shrouding various facets of the U.S economy; while Bernanke stressed that the U.S economy is on the verge of meltdown, and would face a fatal consequence, if the move to save the market is not put in place in such a circumstance.
The ambitious plan for a U.S government bailout of bad mortgage debt proposed to Congress for approval embrace as its core content the massive maneuver of the tax payers' money to purchase bad mortgage debt in a bid to avert the occurrence of the largest-scale financial crisis since the Great Depression.
The U.S Treasury move was widely interpreted as the U.S government's act to save the market. Meanwhile, Paulson's proposal was also met with many doubts. Should the U.S save the market? And why does the U.S use government intervention to 'save the market' in a so-called free economy? But analysts from both political and economic circles seem to have reach the consensus on this point that the purchase plan may be the last chance to rescue the U.S financial system from melting down, as the U.S President George W Bush put it, 'the move could bring to the tax payers some risks, but more risks without doing so.'
Since the eruption of the sub-prime mortgage crisis, the U.S government has gone through two phases to save the market. Firstly, it took steps to increase the market liquidity by means of interest rate and opening emergency loan channels. Secondly, it announced on Sept 7 the takeover of Fannie Mae and Freddie Mac, the two financially distressed housing mortgage giants. However, the previous two phases are described by some observers as the 'first-aid bandage' for the rattled U.S economy. That helps explain why some people pin much hope on the newly staged bailout plan expecting it could trace the cause of ailment and cure the slumping financial market in the last minute.
It is hoped that after the government's bailout of bad mortgage debt, the financial institutions would be pushed back on the right track when they have finished the capital reconstruction. Banks and other institutions bet heavily on mortgage-backed bonds and other securities that lost value as homeowners struggled to make mortgage payments. The bursting of the housing bubble makes it difficult to value and trade the complex securities, clogging the financial system's workings. To allow for the bailout, the U.S government's debt limit would rise to $11,315 trillion from $10,615 trillion. The debt plan was hatched amid grave concerns that other major banks could collapse and that credit markets were close to freezing, threatening the functioning of the U.S economy.
The public opinions are divided on the plan under the Congress discussion now. New York Times deemed the prospects of the bailout plan full of uncertainties, just like 'the weather forecast beyond three years.' But some people hold sanguine opinions on the plan saying that, in the U.S history, any government intervention in economy proved successful, in addition, the U.S economic entities are currently working all right. There may be a good deal of truth in both of the above ideas. In the workings of the financial market, the linchpin upon which success or failure depends lies first of all in the restoration of the market confidence. The plan to buy back mortgage-related debt was just one measures unveiled in the last two days. Besides, the U.S government has also taken some accompanying steps to respond to the turmoil.
At present, even Paulson and Bernanke, the masterminds of the 'market bailout plan,' cannot ensure it will turn out a 100 percent success. As for Congress, 'to save or not to save' is still a question.
By People's Daily Online
|
Comment
Tell A Friend
Print Format
Save Article