Nationalization of Banks

It has only been a week since Congress voted into action the 700 billion dollar buy out plan, but over the weekend officials from leading nations met in an attempt to form a new economic plan. The newly constructed US plan follows the similar platform of European countries. The US government is forcing nine of the largest banks to except a partial nationalization. The government plans to inject cash into the world's leading banks in order to guarantee their debt. The planned amount of $250 billion dollars will be divided into two $125 billion dollar investments. In exchange for giving the Treasury minority stakes, the first $125 billion will be equally invested among the nine large firms. The government will make the second $125 billion available for the next 30 days to thousands of other smaller banks and thrifts across the country.

The nationalization of banks does have a few risks. There is a possibility that the banks will use the new money to increase their balance sheets but still not resume lending. At this point there is not a contract that prevents the banks from doing this. However, bank regulators such as the Federal Reserve will lean heavily on the firms using the money to increase lending to businesses and consumers. The business of lending all but dried up during the past weeks. The new steps planned by the Treasury, the FDIC, and the Federal Reserve amount to a big step in rebutting lending to businesses.

Many people have lost money due to the crash of the stock market, but the new US plan along with the news that Europe would use a similar plan created a huge surge in the stock market. Dow went up over 930 points the next day after the new plan. This was the largest gain in history.

I am very supportive of this new plan. I personally have lost money due to the stock market, and I am hoping that nationalizing the banks will continue to boost the stock market and help solve our countries economic crisis.