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The Second Stage of the $700 Billion Bailout Plan

The Second Stage of the $700 Billion Bailout Plan

Good news about our economy is finally on the horizon. Gas prices, for the most part, have fallen under $2 per gallon. The economy is getting more stable as each day passes. Henry Paulson recently announced that non-bank financial institutions are now going to be included in the loop of bailout attention.

Non-bank financial institutions were not going to be given financial aid from the government originally. Now, these institutions that provide consumer credit (like auto loans and credit cards) are going to be given bailout money. The second stage of the bailout plan is getting underway. Government officials are trying to match investments in the private capital sector. This way, government aid will have a more far-reaching affect.

More of the government’s original plans have been altered. The U.S. government will not plan on buying troubled mortgage assets any more. The good news is the the money that was to be used buying mortgages will now be better spent in other areas of the economy. The bad news is that a new plan has to be created to help homeowners.

It helps to understand what the government’s plans are. Paulson said, “Although the financial system has stabilized, both banks and non-banks may well need more capital given to their troubled asset holdings, projections for continued high rates of foreclosures and stagnant U.S. and world economic conditions.”

He continued, “Second, the important markets for securitizing credit outside of the banking system also need support. Approximately 40 percent of U.S. consumer credit is provided through securitization of credit card receivables, auto loans and student loans and similar products. This market, which is vital for lending and growth, has for all practical purposes ground to a halt.

Congress approved the bailout over five weeks ago. Since then, the United States Treasury has injected capital into almost 50 financial institutions. The institutions have received a total of $172 billion in equity injections. The government is working on approval of another $78 billion. AIG has also received a $40 million emergency loan from the bailout.

Paulson does not think that the economy will require more than $700 billion to bail it out. The economy has already shown positive signs of improvement in the five weeks since the bailout plan was passed. Instead of focusing on mortgages, the government plans to focus on helping companies who provide consumer credit cards. Smart move, especially considering the amount of credit card debt that this nation lives off of.