Average Americans are outraged....the Wall Street screwed up, why do tax payers have to pay....
Yes....it was their fault. But what will happen to average people without this plan?
The problem is that people don't understand how credit/finance works....basic Economics 101.
We are facing slowing economy, unemployment numbers are increasing......now banks are facing bankruptcy. They have assets connected to subprime mortgages, which is very illiquid. They don't know the real value of such assets, therefore they have to write down their assets based on the worst case. That is why banks are losing money and causing their stocks to go down. When their stock prices go down, their balance sheets weakens, then rating agencies downgrade their ratings resulting in higher cost of borrowings.
Now, their equity bases are weak, they cannot lend money to companies and people. That means, the economy would not grow as companies cannot finance their working capital, people cannot borrow money to buy houses, or finance collage tuition. It is like the financial system had a heart attack, and it needs a bi-pass surgery to get blood (money) flowing. That is what is the purpose of the Plan.
I think people need to learn basic education of economics or finance. The administration did not explain the Plan well to the mainstreet, and the Media overly sensationalized it.
Well, if or when the economy turns around, it is likely that the Plan will yield profit. I am trying to be optimistic here. What this plan does is that it will enhance the transparency in banks so that strong banks can survive and they can continue to service.
