Governments to the rescue

Governments to the rescue - Pumping cash into banks and...

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Governments to the rescue: throwing the kitchen sink: these policies stabilize the situtioatn and plant seeds of economic recovery. Will it continue? Will there be new laws to regulate? o Bailouts of financial institutions – direct infusions of capital, public money to keep financial institutions from collapsing and allow them to continue lending money Direct bailouts Fannie and Freddi ($400 billion) AIG (180 billion) The Auto Industry (25 billion) – more controversial The Paulson Plan: TARP – Troubled (toxic) Asset Relief program (700 billion) to take toxic assests of the balance sheets of these banks, the gov will buy them off so the banks will feel confident to lend again The Geithner Plan TARP + some private money, 465 billion or another bailout
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Unformatted text preview: Pumping cash into banks and slowly banks began lending again – very slowly o Monetary policy The federal reserve and European central bank: injecting liquidity and preventing deflation • Increase the amount of money in the economy by decreasing interest rates and creating new money Interest rate 0% Quantitative Easing or “printing money” • The federal reserve balance sheet – create more money electronically, add money to their balance sheet buying toxic securities and buy treasury bonds so the gov can spend money o Fiscal policy The return of Keynesian economics Government stimulus: spending and tax cuts Deficits since 2008 and beyond • Looking forward: an opportunity for reform or back to business as usual?...
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