Separated in time, the bailout actions taken by the U.S. Treasury Secretary and European Union (EU) have something in common: due to large amounts of debts that was rolling into future months, the U.S. government and the EU had to put money to 1) bring down the yield spread that these bailout entities must pay to borrow funds and 2) to provide confidence in this entities and bring investors back.
Paulson’s “bazooka” for GSE; Geithner pledges unlimited blank checks
In 2008, the former U.S. Treasury Secretary Henry Paulson had to bring a “bazooka” to the table to silence market unrest fueled by Fannie Mae and Freddie Mac vast sums of debt and their solvency. The proposed federal backstop infused money in these government-
The current U.S. Treasury Secretary Timothy Geithner also supports the prop for these two enterprises, pledging unlimited aid removing the $400 billion financial cap on the money. Mr. Geithner justification for issuing the “blank check” for Fannie and Freddie bailout is that is crucial in helping to stabilize the housing market and the overall economy.
EU brought the pistol to the table: EU, IMF Bailout
Similarly, the jump in Greece’s financing costs prompted EU finance ministers to infuse money to bailout Greece. Under the plan, the EU will put up €30 billion in the first year and the IMF as much as €15 billion. There is some concern that even these sums will be insufficient.
Greece has raised enough funds to cover more than €10 billion in debt maturing in April, but still needs to sell more bonds to finance the deficit. Greek officials plan a presentation to U.S. investors this month before a possible dollar-
Greece is a small part of the Eurozone and is the first state to hit market turbulence. There are far bigger states in a similar position making the potential bailout cost unthinkable.