U.S. Financial System (6 pages)

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U.S. Financial System

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Pages:
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1409

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I Introduction The EESA enacted October 3 2008 commonly refered to as the bailout of the U S financial system is a law authorizing the U S Secretary of the Treasury to spend up to 700 billion dollars to purchase distressed assets creating by lending institutions across America The EESA proposed by the Treasury Secretary Henry Pailson was the answer to the sub prime mortgage crisis The idea behind the bailout was to purchase and insure troubled assets and provide support and stability to the stock market Lending institutions not adhearing to ethical practices were distributing loans with no financial accountablitiy from the loan purchasers The loans were then sold to the stock market causing the stock market to suffer The final result was to provide stability and prevent further disruption in the economy II The intention of the Act There were several reasons the Act was enforced and passed The main ones are as follows 1 To protect home values prevent foreclosures protect retirement accounts assist renters from losing their units and protect life savings 2 To preserve home ownership jobs and economic growth 3 To maximize overall returns to the tax payers and 4 To provide public accountibility for exercise of authority 110 th Congress The bailout describes buying troubled assets To simply explain troubled assets they are properties banks paid too much for This involved banks making loans to people who could not afford ot pay them and securing the loans with collateral that was worth less than the loan Banks unethically allowed people to take loans for homes cars shopping malls and construction knowing the people had no real income to pay the loans back Lenders were allowed to miss lead people to think they could afford large loan amounts These individuals more often than not were not working or earning at or below national average poverty levels Lending institutions did not educate and glided over loan terms letting individuals think they would be able to afford the



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