In 1998, government passed legislation approving a bank bailout of historic proportion. The Emergency Economic Stabilization Act of 2008 authorizes the United States Secretary of the Treasury to spend up to $700 billion to give banks a fresh injection of liquidity to help recover from the subprime mortgage crisis. The bailout is the biggest government intervention in the financial markets since the Great Depression and is aimed at helping the nation’s economy withstand the financial turmoil and avoid falling further into recession.
Here’s how it will affect you:
- The bailout could help home builders and mortgage lenders but is unlikely to bring fast relief to you if you are trying to buy or sell a house.
- Most analysts predict that house prices still have further to fall and must hit bottom before demand will pick up. Houses on the market may be there for a while.
- Credit markets will hopefully be improving within the next few weeks as banks become more comfortable in lending again. If you have good credit you will probably still be able to get money, but those with less than great credit will have a difficult time for the foreseeable future. Interest rates may be higher, even for those with good credit. Down payments for all types of loans will be increasingly important now for individuals as well as small businesses.
- If you have fallen behind on your home mortgage the bailout will do very little for you right now. The law directs the Treasury to “maximize assistance for homeowners” and write monthly progress reports but says little else.
- If you or your small business is fortunate to have a lot of cash on hand, the bill will make it easier for you to keep your money at a single institution. The prior $100,000 limit on deposit insurance was increased to $250,000 per depositor through December 31, 2009.
- Whether your taxes will go up as a result of the bill will depend on what the next president does. The government will borrow money to fund the asset purchases from the banks. These initial loans will add $2,300 in government debt for every American.
- It is uncertain when the market may recover so if you were hit hard by the recent drop in the stock market, it may take time to recoup your losses. If you are considering adding to your portfolio, take it slowly. Exercise caution when there is volatility in the market.
You may need to relearn a basic concept: spend less than you make.