How the bail-out affects you.

Here’s an extract from a Q&A on the BBC website about the proposed, but rejected, bail-out plan. You will see why it was not popular:

How would the bail-out have affected me?

If you live in the United States, another $2,300 would have been added to your share of the national debt.

The bail-outs were expected to add up to a whopping $1.8 trillion. That’s $15,000 per US household.

Without a bail-out, the economic crisis is likely to deepen.

In a worst-case scenario there could be a domino effect of banks failing around the world.

Not only would that overwhelm any systems protecting savers and investors, it could have triggered a global economic crisis, with millions of companies going out of business and tens of millions of jobs lost.

If some sort of solution can be reached, the worst of the crisis could be avoided, although it is unlikely to bring everything back to normal.

How was the US government planning to finance the purchase?

The US government had intended to borrow the money from world financial markets. The proposed legislation gave the Treasury the authority to issue an additional $700bn worth of Treasury securities.

The hope was that eventually the Treasury could sell the distressed assets back into financial markets once the housing market stabilised, perhaps making a profit on the sale.

Others were concerned that issuing more government debt, and virtually doubling the size of the budget deficit, could be inflationary.

The sale could have made the US more dependent on foreign banks, who may be the biggest purchasers of Treasury securities.

Also, worth a browse, especially if you are a US depositor or investor is the New York Times’ ‘Is My Money Safe?’ and Other Questions to Ask.

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