The New York Times (September 21, 2008) speaks of the $700 billion bailout proposed by Treasury Secretary Henry Paulson as “bold” action to meet the current financial crisis. There are some sectors that disagree and criticize the planned bailout. In lieu of the bailout they propose a radical "freeze” of all the speculative paper, for purposes of auditing. On the other hand, UK Prime Minister Gordon Brown has called on the central bank in order to inject money into the financial system and provide 50billion-pouds in order to save a failing system. It is seen as an emergency action to stop the stock market fallout as the UK’s benchmark FTSE 100 Index closed 7.8% lower and follow the move of the US president with the US bailout to keep financial institution.
The collapse of Lehman Brothers, Merrill Lynch, AIG and HBOS (to name a few) is a simple indicator of the nearing collapse of the western financial system that now threatens the whole world. The biggest consideration is a bailout of the financial system that seems to disintegrate before our very eyes. In contrast, UK bailout has three-part package also makes available £200bn (€254bn) in short-term loans and the Government will issue £250bn (€317bn) to guarantee loans between banks. The deal does not guarantee the deposits of the banks, but provides them with liquidity.
Each of today’s worldwide biggest bailout has their own purposes. As the US bailout purpose, the contingent shares will give taxpayers an equity stake in companies seeking help through the rescue program, potentially allowing the government not only to recoup much of the $700b it spends on bad debt, but also to profit should the financial firms prosper in years ahead. The legislation would require the value of the contingent shares to equal the value of the assets purchased by the government. While on the UK bailout, their banking system must stepped in and must act quickly as Edinburgh-based bank RBS had its credit rating cut by Standard and Poor’s for the first time in ten years. UK Chancellor of the Exchequer Alistair Darling added these steps to partially nationalize the industry and will provide the basic grounding for the provision of cash and investment and joins other European governments who have taken out guarantees.
These two world’s major bailout which is related to financial crisis may have a short term and the worst is the long term bad effect of it. On the side of US, Interest rates on unsecured loans like credit cards would go up, and there may even be a seizing of goods bought in some cases for the banks to get some of their money back. Moreover, new mortgages and loans will be at higher rates. Also, Companies would have to pay higher interest rates to borrow and will have to cut spending elsewhere to stay profitable. In relation with that, much more layoffs resulting in higher unemployment, and the with higher unemployment, the government would have to pay more benefits and would see its tax revenues reduced at the same time. Likewise, UK had estimated that 12,000 jobs will be lost and that the financial industry will continue to be hit hard by the current economic climate.
In conclusion, Philippines will also be affected by this financial crisis. Not only the US and the UK could feel this serious worldwide issue. If we would come to think of it, hundred of thousands or even millions of our OFW will be jobless. Meaning, there would be less national dollar income in our country, and as a result, our economy will surely decline.
Sources:
> New York Times(September 28, 2008)
> http://www.independent.ie/business/irish/banks-in-uk-bailout-still-seek-cover-under-irish-guarantee-1493156.html
> http://www.tsechu.com/blog/?p=16
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