The Bailout: Pros and Cons As the year comes to close, and the United States politicians, legislators, and economists still debate concerning the world crisis, financial bail-out plan becomes an issue of the day. The present paper examines the bail-out, looks for arguments for and against financial bail-out plan, and examines what are the pros and cons to households and firms if Congress decides to pass or deny the bail-out rescue package. Similar to any other problematic and increasingly complex issue, the bailout plan becomes the subject of heated debates. While some politicians and legislators consider this plan to be beneficial and claim it will help to avoid the United Stated a severe recession, with al mortgages and credit to be still available, and providing a fast fix to the United States economy, there are still too many arguments against bail-out rescue package. While examining the bail-out plan, it is possible to come to conclusion that bail-out package definitely has positive consequences for both households and firms. First of all, bail-out plan contributes to global financial stability.
The bail-out rescue package, in case it will be passed and implemented correctly, can definitely bring calm to a volatile global financial system (Some House ‘no’ votes turning to ‘yes’ on bailout).
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The bail-out plan will contribute to protection of the integrity of world financial system. It is also important to mention that the bail-out plan will contribute to investor wellbeing, as it will provide them a shot of confidence, pulling international financial system out of danger (Bail-out debate: For and against).
The bail-out rescue package will also help to avoid recession in the United States economy, which is currently the world biggest one. By doing so, the bail-out plan will help to reduce (or even avoid) a global slow-down and will minimize the negative consequences of a knock-on effect that all other world countries that heavily rely on the United States for trade would inevitably experienced in case the Congress fails to pass the bail-out rescue package. It should be also mentioned that in case the Congress passes the bail-out rescue package, this decision will contribute to enhancing job security, not only in the United States but also throughout the world.
In this case, both households and firms will benefit from the bail-out plan, because it will contribute to safeguarding jobs and preventing inevitable wave of bankruptcies posing a substantial threat to the United States households’ and businesses financial wellbeing, thus helping the United States economy to recover. Finally, there are two other benefits the households and firms in the United States can derive from passing the bail-out plan, namely, credit freeze and toxic profits (Bail-out debate: For and against).
If the Congress passes the bail-out rescue plan, the country will manage continue keeping money flowing through global money markets. To put it differently, it will provide financial institutions with safety guarantees so that they will continue to lend money to each other, to the consumers and businesses. In its turn, this will improve economy and will allow the United States to function with no substantial problems. What concerns toxic profits, although at the moment mopping up debts seems to be a relatively high price, yet, when the authorities sell assets in the future, the value may have increased enough for them to make a substantial profits (Ryan).
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Yet, it should be taken into consideration that along with positive outcomes for the United States economy in general and households and business companies in particular, the bail-out plan may also have negative consequences that should not be underestimated. First of all, if the United States Congress will pass the bail-out plan, it may lead to taxpayer burden, thus negatively influencing both households and business companies in the nearest future. The subject at issue is that the United States government considers purchasing up these mortgage-backed assets at the maturity value. At the same time, it is a common knowledge that mortgage-backed assets maturity value is well above their current market value. Therefore, in case the value of mortgage-backed assets will remain the same and will not see any improvements in the nearest future, it will become very expensive for taxpayers (Morris).
It should be also taken into consideration that passing the bail-out rescue package will balloon our state debt, because the bail-out package may lead to budget deficit and, in its turn, fuel inflation. (Glick) Therefore, both households and business companies will be negatively affected.
In addition to these negative consequences, there are numerous concerns that the plan will get the United States economy moving in the wrong direction. Also, the bail-out rescue package may lead to inflation, because, in case the Congress will pass the plan, infusing a huge amount, $700 billion into a $14 trillion United States economy will obviously increase the amount of money that is currently in circulation, and, in its turn, will cause inflation. In such a way, it is very difficult to come to an unanimous conclusion concerning the bail-out rescue package. On the one hand, the obvious benefit of passing the bail-out plan is potentially saving the United States economy and helping the businesses and households to avoid bankruptcies, and avoid a domino effect of failures. At the same time, there are many arguments against passing the bail-out plan, namely, the most important one concerning the huge amounts of taxpayers’ money that will be used and will burden the United States citizens and firms to pay back. However, no one is sure what may happen if the bail-out rescue package will be not approved.
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Works Cited Bail-out debate: For and against. 25 September 2008. 21 October 2008 . Glick, Alexis. The Pros and Cons of a Government Bailout. 19 September 2008. 21 October 2008 . Morris, Linda S.
Pros and cons of Treasury’s bailout plan. 1 October 2008. 21 October 2008 . Ryan, Daniel M. Morals and hazards: Pros and cons of the bailout. 29 September 2008. 21 October 2008 .
Some House ‘no’ votes turning to ‘yes’ on bailout. 28 September 2008. 21 October 2008 ..
