I do not understand the current financial crisis. Why is it necessary for the government to spend 700 billion dollars to buy up troubled assets before credit can start flowing again? Why can't Federal Reserve Banks just pump the remaining healthy banks with liquidity and get credit flowing much less expensively that way? Why is it necessary to use such an expensive approach ($700 billion in taxpayer's dollars) to keep credit from drying up?
Excellent question. Different sources for the problem and different solutions could be argued for years, and probably will be.
Getting the flow of credit running again is one part of the bailout. They want to ensure that small businesses that borrow short term have access to credit. This affects what they buy, what they sell, and how they pay employees. It reaches many people and then expands to larger businesses. It was one approach that could be taken.
As the Treasury allocates these funds, we'll see many facets of the financial industry affected and these funds may be allocated outside of the financial industry. We'll have to wait and see.
The bailout was a quick answer to an immediate problem, nothing more, nothing less. History will judge if it was a good answer, and even then the arguments may continue.
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Excellent question. Different sources for the problem and different solutions could be argued for years, and probably will be.