By Sidney Perez.
Timothy Geithner announces his plan to clean up the bad assets of the bank.
It will basically consist in buying some bad assets of the banks to drive private investors to do so too.
Indeed, from $75 to $100 billions will be taken from the TARP(Troubled Asset Relief Program) to buy these toxic assets.
This announcement has made the Stock Exchange rise a lot ( the Dow Jones won almost 500 points IE 6.80%). So, will this decision definitely give confidence to the investors, or is it only an illusion?
What I think is it will definitely help the economy to recover a little bit, because these toxic assets really affected the banks for their capacity to give loans.
Indeed, because of the financial crisis, banks really reduced the amount of money they lent and that means that many business could not borrow money to invest or to keep going.
So, if these bad assets become more liquid, banks will be able to give loans again and allow the economy to feel better.
But, will investors really trust these banks ? Will investors accept to buy these assets? Maybe, but the banks also have their word to say and if the federal government estimates their bad assets are worth 60% of their book value, would they accept it?
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And will the federal government be able to spend once again 1 trillion dollar without seriously compromising its ability to pay the interests of such an ammount of money without taxing more its citizens?
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