04 October 2008

US approved Emergency Economic Stabilization Act - EESA

The US authorities approved a $700 billion bank bailout in an attempt to stem the crisis. The new version will raise federal deposit insurance limits and will introduce a package of tax proposals.

The Emergency Economic Stabilization Act of 2008 authorizes the United States Secretary of the Treasury to spend up to US$700 billion to purchase distressed assets, especially mortgage-backed securities, from the nation's banks. The Act was proposed by U.S. President George W. Bush and Treasury Secretary Henry Paulson during the global financial crisis of September–October 2008.

 

The new version approved by the Congress will raise federal deposit insurance limits from 100,000 to 250,000 dollars per account. Another big change is the introduction of a 10-year, 150.5 billion package of tax proposals, including measures to ease the bit of the so-called alternative minimum tax and R&D tax credits coveted by high-tech companies and drug makers.

 

The original proposal was three pages, as submitted to the United States House of Representatives. The purpose of the plan was to purchase bad assets, reduce uncertainty regarding the worth of the remaining assets, and restore confidence in the credit markets. The text of the proposed law was expanded to 110 pages and was rejected via a vote of the House of Representatives on September 29, 2008.

 

On October 1, 2008, the Senate debated and voted on a newly revised version of the Emergency Economic Stabilization Act. The Senate accepted the amendment and passed the entire amended bill by a vote of 74-25. Additional unrelated provisions added an estimated $150 billion to the cost of the package and increased the size of the bill to 451 pages. The amended version was sent to the House for consideration, and on October 3, the House voted 263-171 to enact the bill into law. President Bush signed the bill into law within hours of its enactment, creating a $700 billion Troubled Assets Relief Program to purchase failing bank assets.

 

Proponents of the bailout plan argued that the unprecedented market intervention called for by the plan was vital to prevent further erosion of confidence in the U.S. credit markets and that failure to act could lead to an economic depression. Opponents objected to the massive cost of the sudden plan, pointing to polls that showed little support among the public for bailing out Wall Street investment banks, and claimed that better alternatives were not considered and that the Senate only tried to force the passage of the unpopular but sweetened version of the bailout through the opposing House and was successful in this attempt.

 

Proposal

Summary

Link to legislative text

For further information see Wikipedia-Article