(C) The $700 billion bailout plan

The continuous support offered by the US Government to the Federal agencies – Freddie Mac and Fannie Mae during the last 40 years, aimed support to the housing expansion in the US, which is everything but a market mechanism leading to lower financial expenses for the borrowers. If for such a long period one has spared the expense on interests, amid the government support, now it is time for those savings to be spent from the same borrowers’ taxes. In the economy, just like in the nature, nothing gets lost, it just changes, shape and possession. In fact the real problem is within the non-US economies who bear the negative consequences of the excessively exuberant US consumer.

The capital markets in my opinion have already reflected these $700 bill., as of the day it was announced by Henry Paulson. Taking into account the tremendous overnight high-liquidity offered by the central banks and the relatively illiquid bailout cash, it stands more of a moral support to the world financial system. At this stage, however, this is the most important role of the governments and the central banks, if they want to prevent a financial and economic collapse.

The exact effect of the bailout plan might be estimated once the exact rules of of picking and valuing the toxic waste become fact.