A bailout of the U.S. financial system has passed Congress and was signed into law by President Bush on Friday. Now what? "The Economist's" U.S. Economics Editor Greg Ip tells "The Takeaway" what the plan is designed to do and how it will function, and explains the best-case and worst-case scenarios.
Secretary of the Treasury Henry Paulson is going to be getting down to business -- now with access to $700 billion dollars to bail out the troubled U.S. financial market. His first step, Ip says, is to restore confidence in the market by taking troubled assets off the hands of banks. This will give banks good cash in return, which will spur investors to once again invest; lenders will resume lending and banks will no longer have trouble getting funds, and will resume lending to businesses and consumers.
The Emergency Economic Stabilization Act gives Treasury Secretary Paulson broad authority and flexibility to buy anything he needs to help stabilize the crisis. The focus is on buying mortgage-related assets, but the Act will also allow for the injection of capital into failing banks.
An Office of Financial Stability will manage the execution of the Act, and will be overseen by a Financial Stability Oversight Board. The actual management of the money will be outsourced to companies that have expertise this area.
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