The actual economic bailout of Wall Street and the individual Essay

The actual economic bailout of Wall Street and the individual homeowner bailout by Jeffrey Fu - Essay Example The federal regulation kept the interest on the loans low, which gave room for Fannie Mae. Its counterpart, Freddie Mac, bought billions of dollars and then fed the market to feed them, of which they were risky mortgages bought. The subprime mortgages initially aimed at borrowers who had low or poor credit cases or histories. A great number of people invested and went into a great deal of debt, since the house prices were high till when they started dropping, which brought about the huge losses (NRCC 1). This paper is a comparison and contrast of the actual economic bailout plan of Wall Street and the individual home owner bailout plan. Mortgage meltdown is a common term used to mean subprime mortgage crisis due to the credit crisis in 2008 (Bianco & Pachkowski 1). There were two proposed bailout plans. First was the Economic Bailout Plan of Wall Street announced by Henry Paulson, that holds reverse auctions (Miron 5). A newer expanded version of the bill passed included the buying o f equity positions in the banks, reducing the interest rates and expansion of the deposition insurance. The other plan is Individual Homeowner’s Bailout Plan that has two versions where in one version, the government helps by giving a loan paid as soon as one is financially stable, and the other comes in form of a government grant. In both cases, they don’t involve the principal reduction on the value of the house, and payment is done directly to the mortgage provider. The government share is the same as the percentage reduction in the income of the home owner and it ceases when the financial state is restored. The economic bailout plan has the reverse auctions whereby they buy the assets troubled or in debt of the home financial institutions. Also, the use of taxpayer money to buy equity positions in the country’s biggest banks. All these are aimed to try to stabilize the financial markets and avoid the eventual bank failures and credit freeze that comes with i t (Miron 7). This approach is aimed at taking the taxpayers money to the investors and insured depositors. The home owners on the other hand will keep on plunging into deeper debts. The individual home owner’s bailout plan uses the taxpayer’s money just as the economic bailout plan, but in this case, the government uses the money to try to keep the house with the home owner in either giving a loan or as grant. In case of failure to pay up, the house is put up for foreclosure (Foote, Fuhrer, Mauskopf & Willen 2). At the end of 2005, the housing industry became expensive and this in turn would trickle down to the banks, hence the need to make a plan to avoid the collapse of the major banks came to play. The economic plan stated the buying of equity positions in the major or bigger banks using the taxpayer’s money. The plan allowed for the buying of equity positions to Freddie and Fannie in case of a collapse or destruction, using the taxpayer’s money. This will create a separate entity that is a regulator to Freddie and Fannie, and Federal Home Loan Bank system (NRCC 2). This in turn raises the debt pool. These government institutions enjoy a great deal of bailout money, but there is also the fact that cannot stop the decline of these institutions, and still need an increase in the bailout money (Weiss & Larson 1). The individual bailout plan focuses on the home owner and uses a different approach to get the same results. This approach is designed to help the home owner raise money for the mortgage, and the fact that it is directly paid to the mortgage providers, makes it easier to meet this