Circle Of Debt: The Banking Bailout Explained(WCCO) The Dow Jones Industrial Average soared almost 368 points Friday. The NASDAQ rose almost 75 points. Investors liked hearing about the biggest government intervention in financial markets since the Great Depresssion.
"We must address the root cause behind much of the instability in our markets: mortgage assets that have lost value during the housing decline and are now restricting the flow of credit. America's economy is facing unprecedented challenges, and we are responding with unprecedented action," said President Bush.
The Bush Administration Friday outlined a plan to buy up bad mortgages from banks so they can start lending again.
In addition, the government will use up to $50 billion from a Depression-era fund to temporarily guarantee money market mutual funds.
The bailout could cost taxpayers $1 trillion.
"We don't want to have what happened back in the Great Depression. We don't want to have people standing in line and losing money," said financial analyst Nicole Middendorf.
That's why the government is planning on spending hundreds of billions of dollars to buy out bad loans. It's the fallout from the sub-prime mortgage crisis.
"Now we have investments are worth nothing and we have to come up with cash to keep the system afloat," said Middendorf.
But just how is the government coming up with that cash?
"I give you some of what I have, and then go to someone else and get money to pay you. That 'someone else' is other countries," she said.
But that foreign lender will want to be paid back with interest, which means Uncle Sam goes back to the taxpayer for the cash.
"We really need to be conscious and aware of where our dollars are going, but we also are going to unfortunately have, probably, taxes increase because we need to have more money coming in to pay for all this," said Middendorf.
President Bush acknowledged that the programs will put a "significant amount of taxpayers' money on the line," but also said he expects the money will eventually be paid back.