What is the point of financial injection?
This article will help you understand what is the point of financial injection US has given to their economy and what a financial injection actually is.
The government would be authorized to use $700 billion to buy mortgage-backed securities from financial firms. The idea is that, with these toxic assets off the books, lenders would start lending again, and the credit markets would unfreeze.
The main objection to this plan, says Davidson, is that “there’s all these crappy assets the banks don’t want, and the U.S. government is about to buy them. And so we’re about to be the owners of $700 billion of crap.”
“Also, these assets have absolutely no price,” he says. “That is the cause of this crisis.”
An asset’s price is determined by what an investor is willing to pay for it. Since no one wants to buy mortgage-related securities right now, then at the moment, they have no price. That means the government is going to have to make up a price, Davidson explains.
If the price is too low, then the bailout won’t work, because it will not provide banks with enough money to save them. But if the price is too high, then taxpayers will get ripped off. “So you have to find this magical price,” Davidson says, but no one knows what that price is.
So, if you take a look at the article in which i wrote about reasons for this crisis here , then you can see that with this injection, US government will get rid of the reason and all we have to do after that is to wait for everything that has grown out of this reason to calm down. If i tell it with a metaphor: “Government will kill the roots and all we have to do after that, is to wait that the tree dies.” .
Source: Npr.org
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Tagged as financial crisis, financial injection, money, recession + Categorized as Business, Economy articles
so basiclly the government is buying all the mortgages that have caused the crisis…
well it makes sence, let’s just hope that it will work everything out… it is all getting soo messed up
Oh i wish it was that simple… I doubt this will help much. Becouse until people don’t change their way of thinking and way of spending their money, no government help will help…