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What’s the Bailout Plan All About?

bailout economics IRS tax return

Generally, the bailout plan was a sort of debt relief program that was pushed during the Bush administration. It was during a time wherein there was a great upheaval in the world of finance. After all, drastic circumstances require drastic steps to be taken to resolve it. How it works is that there was a recovery package valued at around $700 billion set aside for this. It’s technically a bailout program that called for the government to spend that allotted recovery package amount to buy out distressed mortgages. The thing with the recovery package is that it cannot go any higher without any other additional legislation to support it. The cost of fixing the financial mess had two extreme forecasts. If they were to be optimistic, it would only cost up to $500 million and everything’s resolved. On the pessimist’s point of view though; it can take up to as much as $1 trillion to clear up and rid of the whole financial mess.

Suffice to say, the $700 billion was an addition to a pre-existing $85 billion bailout agreement of a known insurance company American International Group, and on top of that is another $29 billion in support which the government has pledged in ensuring the merging of JP Morgan Chase and Bear Stearns. The rolling numbers don’t stop there, though. According to the Congressional Budget Office, another $25 billion was set aside for the federal bailout of Freddie Mac and Fannie Mae – these are leviathans in mortgage finance companies.

The thing is, American taxpayers were the ones who were required to come up with the $700 billion. The concept of the thing is that after the Federal Treasury buys up all of those troubled mortgages; it will then try to resell them to interested investors. What generated optimism overall was the speed with which the Congress responded to the problem along with the involvement of the National Treasury on the issue.

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