US $700 Billion Bailout VS.UKL 87.5 Billion Bailout

With all of the turmoil in the financial industry, one word that keeps making the rounds is “bailout”. A bailout is when the government extends a loan(or take over) a private company because it is deemed “too large to fail.” The government has to save them because these business are jobs providers and if these businesses failed, the country’s economy will definitely be in crisis.

AIG, the country’s largest insurer, recently received an estimated $85 billion bailout. And the bailout engineered for Fannie Mae and Freddie Mac could cost over $200 billions.

If you own stock in a company being bailed out by the government, your shares will be worth next to nothing. Selling is usually your best option but hold your bonds. Bondholders make out like bandits, since the bailout usually ensures that their interest payments are made on time.

The government will buy guarantee bonds and stocks. It is hoped that the bailout plans will help the companies to recover. The short time effect will be a partial and temporary lift to the stock exchange. The long term effect is that the government will have too much bonds that are unredeemable which at the present crisis amounts to $1.3 Trillion.

On the other hand, UKL87.5 Billion bailout plan is primarily intended, too, to save some companies in the UK that are in financial trouble or crisis like the Lloyds and other insurers. The bailout aims to provide enough cash to keep these businesses afloat. This bailout will eventually stabilize the financial crisis in the UK.

Similarly, both US and UK government will have the financial burden of accumulating too much stocks and bonds that will be very difficult to transform into liquid assets.

sources:
www.rediff.com/money/2008/sep/26bcrisis8.htm
www.ulinkx.com/playlist/bush_signs_historic_700_bailout_bill
3news.co.nz/BushsignsUS700billionbailoutbill/tabid/.../52/Default.aspx
economicshelp.org/2008/10/difference-between-uk-and-us-bailout.html
www.winterspeak.com/2008/04/uk-bailout.html