On Saturday, the US Congress finally passed a $700bn (4.7 trillion Yuan) bail-out plan. The US government will buy the bad mortgage debts which triggered the crisis in exchange for a stake in the banks they rescue.
On Monday, the entire economy of Iceland came precariously close to bankruptcy. The government introduced emergency legislation to allow them to effectively run banks’ operations.
Today it was the British government’s turn, offering banks that are interested a slice of £50bn (596 billion Yuan) in exchange for a stake. It is also offering loans of up to £250bn (2.98 trillion Yuan) which banks can use for a fee. Banks won’t lend to one another at the moment, so the hope is that this measure will increase liquidity – get money flowing again.
This is vital since the ripples of the credit crisis are already reaching smaller businesses, who have seen their interest rates on loans increase. Consumer confidence is also down, affecting sales on the high street.
If the plans work and banks in the UK and US recover, tax-payers in both countries could make a profit from their governments’ interventions. If the plans fail, the banking system will simply collapse.
Either way, we should be prepared for another escalation in language, as the ‘financial crisis’ perhaps becomes a ‘severe economic recession’.
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