Bailout legislation

Bailout legislation

Bailout Legislation refers to The Emergency Economic Stabilization Act of 2008 passed in order to bailout the financial system of U.S. from the liquidity crisis. It was proposed by George W. Bush, president of U.S. and Henry Paulson, treasury secretary of U.S. The main aim of the Bailout Legislation was to allow Secretary of the Treasury of the United States to pay out US$ 700 billion in order to buy concerned assets from the U.S. banks.
The proposal of the bailout legislation was originally of three pages when it was submitted to the House of Representatives. And then after repeated amendments and rejections, the bill was finally enacted into a law on October 3. The synopsis of the Bailout Plan or The Emergency Economic Stabilization Act of 2008 (EESA) included the much needed Economic Stabilization, Preservation of the Homeownership, Protection of the Taxpayer, pay limits for Executives and strong oversight.
The Bailout Legislation granted nearly US$ 700 billion to the Treasury Secretary of U.S. to purchase mortgages and other bad assets to avoid the failures of the financial institution which was in turn creating a bottleneck for small businesses, working families and other companies as credit access became difficult which was showed by the bankruptcy of the Lehman Brothers. It also empowered companies to insure their distressed assets.
EESA demanded the treasury to alter troubled loans making it possible for homeowners to save their homes. It also compelled other agencies to revise the loans that they control. It also helped the Homeowners program by increasing eligibility and giving more freedom to the Department of Housing and Urban Development.
EESA protects taxpayers as they do not want to pay for the mistakes of the Wall Street. The Bailout Legislation forced companies to sell a portion of their bad assets to the U.S government. They in turn were provided warrants, so that taxpayers will profit from future growth of these companies which they may experience as an outcome of their involvement in the program. The Legislation also covered for any losses of the taxpayers as all companies would be charged a small fee.
Executives were also not spared by the legislation. To be involved in the program financial institutions were compelled to lose tax benefits and further were asked to set a limit on executive pay. In return the legislation restored unearned bonuses.
The funds were not given to the treasury at once. US$ 250 billion were given immediately and then in two parts of $100 billion and $350 billion. The legislation also included that the progress in crisis management and utilization of funds should be reported by the treasury to the designated authority. EESA also established an Oversight Board, so that any illogical actions of the treasury can be checked out.

 Print this page