Why The Bailout Plan Has To Be Passed And Its Adjustments Essay

The mortgage crisis of 2007 marked catastrophe for millions of homeowners who suffered from foreclosure and short sales. Most of the problems involving the foreclosing of families’ homes could boil down to risky borrowing and lending. Lenders were pushed to ensure families would be eligible for a loan, when in previous years the same families would have been deemed too high-risk to obtain any kind of loan. With the increase in high-risk families obtaining loans, there was a huge increase in home buyers and subsequently a rapid increase in home prices. As a result, prices peaked and then began falling just as fast as they rose. Soon after families began to default on their mortgages forcing them either into foreclosure or short sales. Who was to blame for the risky lending and borrowing that caused the mortgage meltdown? Many might blame the company Fannie Mae and Freddie Mac, but in reality the entire system of buying and selling and free market failed home owners and the housing economy.

The government's attempt to stem the tide of foreclosures and arrest the incredible fall in home prices have been, in a word, pathetic. One proposal suggested was for banks to offer low 4% mortgages -- a step in the right direction. But in extending support to buyers of homes, it completely ignores the problems of millions of families that already have mortgages. As a result, it does little to halt the surge in foreclosures. With more home owners likely to default this year, the situation is far from recovery in spite of a wall street surge since March of this year. The new rates, and lower monthly payments, would be especially helpful for homeowners with negative equity (they owe more on their mortgages than their homes are worth). Such underwater borrowers, prime candidates for

In 2008, the world experienced a tremendous financial crisis which rooted from the U.S housing market; moreover, it is considered by many economists as one of the worst recession since the Great Depression in 1930s. After posing a huge effect on the U.S economy, the financial crisis expanded to Europe and the rest of the world. It brought governments down, ruined economies, crumble financial corporations and impoverish individual lives. For example, the financial crisis has resulted in the collapse of massive financial institutions such as Fannie Mae, Freddie Mac, Lehman Brother and AIG. These collapses not only influence own countries but also international area. Hence, the intervention of governments by changing and

“Most of the homes being abandoned and foreclosed will produce losses for the mortgage lender, which could add up to trillions of dollars and break the financial system before it is half repaired” (Zuckerman, 2008). These are the major reasons why the government should be thinking of a bailout for homeowners. If the government will not take action, then these losses will go past any bailout efforts of the government and it will be too late. By preventing foreclosures, it could bring a double benefit to the US economy and society. It would let families to stay in their homes and at the same time keep the housing market from getting out of control.

Foreclosure is a dangerous issue that has swept our nation in the last few years. Americans are losing their homes due to jobs being lost, home values falling, and banks lending out more money than homeowners can afford. Despite the multitude of issues that arise out of foreclosure, the main problem at hand can be almost solely traced to the economy. The recession has put many people out of work, made taking out loans more difficult, and has caused a nationwide panic. Therefore, to completely solve the foreclosure problem, it is necessary to trace the issue back to its roots, being the economy. This would take fifty pages to discuss, so this paper seeks to solve one aspect of foreclosure. Refinancing is an option that has become

Government help was seen as the only way to avoid a total economic collapse in the United States, although many thought it could result in a worldwide economic recession. On September 18, 2008 the 700 dollar bailout plan was proposed to congress. Fed Chairman Ben Bernake is quoted telling congress, “If we don’t do this, we may not have an economy on Monday” (The Housing Market Crash of 2007, 2011). This is when it became apparent that the government had a stake in this situation. When people begin questioning whether the United States economy will still exist, the government then has a huge role in the survival of not just the economy, but the entire country. The government is in a situation where it must decide how to protect the American economy, the citizens, the businesses, and the future of the United States of America. On October 3, 2008 congress passed “Emergency Economic Stablization Act” (H.R. 1424- 110th Congress, 2008) which led to the lending of 700 billion dollars’ to

The government has given money to the banks to help give the economy a boost. The banks should use a portion of the money to help homeowners keep their houses. The banks should be willing to modify the loans so that the homeowners can stay in the houses and not have to move out. If the banks will set new guidelines that are feasible for the homeowners the crisis can be reduced. The banks need to visit the areas that are foreclosed on and see what conditions the houses are currently in. The banks could work along with the homeowners some type of lease purchase agreement so that the homeowners can continue to stay in the homes but pay lower payments. Once the homeowners are in the houses for a specific time and made the payments in a timely manner, those payments can be applied to the balance on the loans.

The unprecedented government intervention during the massive economic crisis of the late 2000’s was met with varied sentiment of economists (Lee, 2009). For example, economist Marci Rossell felt that government intervention was arbitrary and lacked clarity as to which firms would receive government aid (Lee, 2009). She furthered her argument by stating that if the government bailed out homeowners and banks that were borrowing and lending “over their heads,” they were creating a dangerous precedent to set (Lee, 2009, p.40). However, Rossell praised the Obama administration for having a clear grasp on the economic situation and trusted in this administration’s guidance to recover from the economic crisis. Conversely, economist Steven Schwarcz said that though the government bailout in 2008 would cost more than it would have if the government had reacted more swiftly to early signs of recession, these institutions would collapse and fail without government aid (“How Three Economists,” 2008). If these institutions failed, the ripple effect of this failure to the U.S. economy would be irreparable.

During Reagan's administration, Continental Illinois, the 8th largest commercial bank at the time, was bailed out because there was a fear that if International bond holders saw a large bank failing, they would pull money out of all American bank. So, after Continental Illinois was bailed out, large banks started to become dependant on the government. They began to act riskier with investments because they knew the government would bail them out. During Bill Clinton’s presidency a similar situation occurred, further clearing the message that if you are a large bank and are about to fail, the government will take tax payer’s money to bail you out. Again, during Bush’s last year as president, because of a fear of a recession, Bush once again bailed out large banks. It is a continuous cycle that unnecessarily and negatively impacts everyday people. Government has now got itself trapped in a bubble where they will constantly bail out large banks due to the fear of a economic collapse, but each time the government bails out the banks, the potential crisis worsens. The government is not responsible for saving the banks, only our

A deal could be made for the individuals who’s homes have dropped in value so much that they see no incentive to stay. When GM and Chrysler were bailed out by the government, the government took a share of the stock as collateral, assuming that the worth of the company would go up and they would at least come out even. You can’t take out stock in a person, but you can apply the same concept. Assume a family has a home valued at eighty thousand dollars but the bank is owed a hundred twenty thousand on it and the family can’t make the payments. The bank would take a forty thousand dollar loss if the family walked, assuming the house would sell. If the bank offered the family to split the increased value of the house beyond the current value, then the family would have incentive to stay, and the bank wouldn’t be out forty thousand dollars. An alternative would be to let the bank have all of the excess equity over the value used to restructure the loan , up to the amount of original shortfall. The benefit to the borrower is lower payments and the ability to remain in the home (and still be part owner). This assumes the housing market will return and the value would go up. An example of this would be if the bank allows the mortgage to be rewritten for $80,000 and gets half interest in the equity over $80,000, limited to the $40,000 shortfall from the original loan. If the house sold for $110,000, then the bank

However, after five years of the financial crisis happened in 2008, is the “too big to fail” problem being solved or controlled? Jim Puzzanghera who published his article on Los Angeles Times insists that banks considered too big to fail are even bigger now. Puzzanghera provides his opinion based on the data he collected, “Just before the financial crisis hit, Wells Fargo & Co. had $609 billion in assets. Now it has $1.4 trillion. Bank of America Corp. had $1.7 trillion in assets. That's up to $2.1 trillion.” Puzzanghera explores that one main concern of coming out with a solution to this “too big to fail” problem is that Democrats and Republicans rarely reach an agreement on the problem. Most Democrats are willing for the federal authority to seize the power and to get rid of the firms if they are too big to fail while most Republicans do not want to force the banks to shrink. In stead of regulating those big financial firms, “the government's new power to seize large financial firms teetering near collapse could result in them being rescued instead of shut down, in effect enshrining

A government bailout is a situation in which the government offers and gives money to a business that is failing so it can prevent the consequences that can come from a business's downfall. Businesses that hire thousands of people tend to ask for these bailouts so there are not massive layoffs of their workers. This way they can continue to operate their business until their profits go back up and they are able to pay the entire bailout back. As a part of a case study I had to play the scenarios of a three different people with various backgrounds. The people had a different Ideologies regarding their views on the use of government layoffs.

Of every issue facing the American people today, including our wars in Afghanistan and Iraq, our floundering economy, and our troubling health care system, none may be considered quite so frightening as the state of the sub-prime mortgage crisis. While matters in the Middle East and Washington often seem irrelevant and far away, the beast that has evolved out of low interest rates and plummeting housing costs is currently breathing down the necks of Americans in every state, city, and neighborhood. According to Realty Trac, the leading online database on foreclosure statistics, 3.4 million homes will fall into foreclosure before the end of 2009. Foreclosure and bankruptcy, often caused by unemployment or medical catastrophe, affect not

Just after ten years of Asian financial crisis, another major financial crisis now concern for all developed and some developing countries is “Global Financial Crisis 2008.” It is beginning with the bankruptcy of Lehman Brothers on Sunday, September 14, 2008 and spread like a flood. At first U.S banking sector fall in a great liquidity crisis and simultaneously around the world stock markets have fallen, large financial institutions have collapsed or been bought out, and governments in even the wealthiest nations have had to come up with rescue packages to bail out their financial systems. (Global issue)

In 2008, the world experienced a tremendous financial crisis which is rooted from the U.S housing market. Moreover, it is considered by many economists as one of the worst recessions since the Great Depression in 1930s. After bringing a huge effect on the U.S economy, the financial crisis expanded to Europe and the rest of the world. It ruined economies, crumble financial corporations and impoverished individual lives. For example, the financial crisis has resulted in the collapse of massive financial institutions such as Fannie Mae, Freddie Mac, Lehman Brothers and AIG. These collapses not only influenced own countries but also international scale. Hence, the intervention of governments by changing and expanding the monetary