US Bailout vs UK Bailout

Many banks in US and UK are getting tide up with problems regarding money and some of these banks are already bankrupt. That’s why the US and UK government sets out the bailout to stabilized the banks.

According to Times Online dated October 8, 2008, many banks in US are forced into distressed sales this year because of the billions of dollars of bonds that they have and the size of their investments are too large that it threatens to bankrupt them. Because of this Mr. Paulson, the Treasury secretary, wants to have the bailout to help these banks. This bailout contains $700 billion taxpayers’ money. Its purpose is to buy the distress bonds. Mr. Paulson also proposes to put them into federal-bucked fund, which will be controlled by the Treasury.

In UK according to BBC News Channel dated October 8, 2008, the UK bailout will initially make extra capital to the banks. The Prime Minister said that, it is also designed to put the British banking system on a sounder footing. It contains 400bn so that banks will have to increase their capital by at least 25bn.

According to CNN.com/world business dated October 8, 2008, not like the US $700 billion bailout it does not recapitalize the banks in return for a share holding on which taxpayers could see a return. Instead, its main aim is to purchase all the bad debt held by the banks and make money from that over time. The risks to U.S. taxpayers are perceived as being greater.

These bailouts have short and long term effects. In US, according to Times Online dated September 25, 2008, for now maybe once the market recover the fund can sell the bonds back into the market and claw back some of the $700 billion. According to Poltenson in Business Journal dated October 10, 2008, maybe after a long period of time the taxpayers will be angry. Tax rates will double and the government could eliminate every other federal program, including defense and education; or run massive budget deficits that, in time, will strangle the economy.
In UK, according to CNN.com/world business dated October 8, 2008, for now the banks are happy because they have been clamoring for extra cash to shore up their balance sheets following the runs on their share prices. But after a period of time if shares prices continue to slide the tax payer loses out. Moreover, if the banks take up all of the government's latest lending and can't pay it back the financial hangover could last for decades. If banks don't start lending again to each other and, just as importantly, customers, a deep recession is inevitable.

Sources:
1. http://www.timesonline.co.uk/tol/news/
2. http://www.businessjournal.com/
3. http://news.bbc.co.uk/
4. http://edition.cnn.com/BUSINESS/