Bailout Plan Analysis
Article analysis – Bailout Plan
Facing the worst crisis since the 1930’s, the treasure department using its executive power sent congress a draft proposal for a bailout plan. Our group decided to criticize the legislative draft proposal itself.
As an executive proposal, the plan has to be approved by the House of Representatives and the Senate. On its first vote, even tough it passed on the Senate it didn’t on the House of Representatives and because of it, it was send back to the House of Representatives consideration. The Bailout plan was approved and sign by the president on October 3rd.
The plan is to give the Secretary of Treasure authority buy assets from U.S. financial institutions having headquarters in the United States. The proposal was keep simple in order to be flexible to adjust to the economic market response. Only one limitation was imposed: the purchases could not exceed $700 billion dollars. However, because the language was kept simple, it became a little vague and open to misinterpretations. An example of a possible misunderstanding regarding the maximum amount of authorized purchases is showed bellow:
Ex:
Sec. 6. Maximum Amount of Authorized Purchases.
The Secretary’s authority to purchase mortgage-related assets under this Act shall be limited to $700,000,000,000 outstanding at any one time.
An example of a vague term is mortgage-related. It does not define what assets could be purchased at all. Different people could have different definitions of what related is. From different perspectives, anything could be defined as related.
A second misunderstanding could be created with the “at any one time”. Does that mean that the Bailout plan is limited to $700 billion dollars or one mortgage-related asset purchase is?
We understand that it is important to keep the plan simple in order to adjust it to the economic market response, but more important than...
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