US Government to Rescue Crashing Financial Market

The US have announced today that they will be investing billions of dollars into the banking industry in order to combat the global financial crisis. After a lengthy meeting with congress members late on Thursday the US treasury secretary Henry Paulson said new laws were needed to deal with the “root” of the problem.

This meeting comes after a series of shocks to the financial industry around the world. This week we saw one of the biggest banks in America, Lehman Brothers sink into liquidity. This was a massive shock for millions of people as no one would of guessed that such a big company could go down.

The UK have been preparing for the ripple effect to hit us and have thus invested £27Bn into keeping the UK economy alive. This is such a strange time for everyone at the moment and no one is sure what to think. Which business will plunge into the abyss next? In London an announcement was made that the financial services authority is to temporarily ban short-selling in certain financial companies who have been added to the dramatic change in sentiment. Short selling is when a trader borrows shares from another to sell them then buy them back at a lower price therefore pocketing the profit margin.

The proposed injection of money from the US Government comes from the most chaotic week in US financial history. Central banks across the world have pumped in billions of dollars into the banking industry to ease the liquidity crisis.

There were ideas to set up a government agency to take on most of the debt that has accrued from recent weeks. Something similar to the Resolution Trust Corp (RTC) which was formed after savings and loans banks collapsed in the 1980s. The RTC took over most of the smaller banks in America for around $400Bn about $1 trillion in today’s society. They then sold off all their assets. The cost of such a massive bailout these days would naturally cost so much more but it may be something to consider getting the financial industry out of this mess.

 

Tagged with: Central Banks • Resolution Trust Corp • Strange Time

Filed under: Financial Crisis

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