Emergency Economic Stabilization Act of 2008 Did Not Work

In early October 2008, the Congress passed and the President signed the Emergency Economic Stabilization Act of 2008. The purpose of the bill was "to restore liquidity and stability to the U.S. financial system and to ensure the economic well-being of Americans." The law authorized the Secretary of the Treasury to establish a Troubled Asset Relief Program (TARP) to purchase the toxic waste poisoning the balance sheets of lenders and other financial institutions. This measure was passed in response to an unprecedented seizure of the short-term credit markets. Banks quit lending money to other banks once it became apparent that few of them were solvent. This fear spread to all short-term commercial paper and threatened to bring down the entire financial system. It is unclear whether or not this new program will save the institutions holding the toxic waste.

When this legislation was first introduced, there was widespread public disapproval of what amounted to be a transfer of wealth from taxpayers to rich bankers on Wall Street. There was no mention of bailing out troubled homeowners who were the cause of all the financial distress in the lending industry. Since desperate homeowners were not being given any new false hope, they saw no reason to support the bailout. A series of dramatic drops in the equities markets while the legislation was being debated helped turn the tide of public opinion.

The impact of this legislation is unknown at the time of this writing; however, it appears to be designed as part of a controlled implosion of the banking system. With $700,000,000,000 at his disposal and complete discretion on how to spend it, the Treasury Secretary, with cooperation from the Chairman of the Federal Reserve, will be able to sort out the healthy banks from the unhealthy ones, broker mergers and acquisitions and recapitalize the survivors. By October of 2008, the need for bailouts and false had gone beyond foolish borrowers; the banks were the ones who needed some denial.Lawrence Roberts is the author of The Great Housing Bubble: Why Did House Prices Fall?
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