Saturday, September 20, 2008

TARP falls into a trap

The US House of Representatives (Lower House of Parliament) has rejected TARP or 'Troubled Assets Relief Program' of the US government to bail out financial institutions. The US$ 700 bn plan that would have allowed the US Treasury Department to rescue the financial system got a thumbs down yesterday by a vote of 228 to 205. This sent the US stock markets in a tizzy, as the benchmark Dow Jones Industrial index declined by a massive 777 points (7%), its biggest single day decline ever.

Warren Buffett had recently proclaimed that the financial crisis in the US was 'everybody's problem' and not just that of Wall Street. He had in fact warned policymakers that the US might face its 'biggest financial meltdown' if they did not do something to secure the financial system. Now with the bailout plan turning turtle, experts are predicting the financial system and the economy to be in dire straits. Although another version of the bailout plan will likely go before the US Congress for a vote, concerns remain that the passage of the bill could be a more drawn-out process.

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