Government plans to purchase mortgage backed securities in an attempt to increase the flow of cash at banks has been tweaked with a portion of the funds now being directed towards preferred stocks. Some experts expect this investment will bring the government (and U.S. taxpayers) more of a bang for its buck.
WHAT JUST HAPPENED
The government is investing $250 billion in bank stock, so far:
*Approximately 50% ($125 billion) is expected to go to towards investments in large banks, including Bank of America (STOCK QUOTE: BAC), JPMorgan Chase (STOCK QUOTE: JPM), and State Street (STOCK QUOTE: STT) among others.
*Approximately 50% ($125 billion) will be available for small and regional banks.
WHAT IT MEANS FOR BANKS
Among other things, the government has created corporate compensations rules, which includes limiting taxable deductions in excess of $500,000.
WHAT DOES THE BAILOUT MEAN FOR YOU
The bailout plan is expected to free up cash allowing small businesses to continue to obtain credit to fund and create employment opportunities, in addition to making it a little easier for Americans to get loans.
WHY THE CHANGE
Other than the government getting more for its money, the recent decision to invest $250 billion in preferred stock could boost consumer confidence. The bailout has a lot to do with giving confidence to the markets and the public because the last thing government officials want to see is another Great Depression, says Jennifer Openshaw
President & Co-Founder of WeSeed, a startup financial education website.
Openshaw Host of ABC’s Winning Advice continues:
"There's two key points for Main Street: First, this is about getting the lending proceeds going so that America keeps buying and businesses keep hiring. Second, it's about protecting our money. I don't think any of us as taxpayers want to be providing a huge bailout without some return on our money or at least some protection, especially when folks are seeing friends and family lose their jobs. Elected officials got that message.
"I think it will be several weeks, if not a couple of months before some of the benefits are seen, but we've got the recession on top of it. However, once we get the lending process going, we'll probably start to see the effects of the recession reverse themselves. Why? Because when people start feeling better about the economy, they will then start spending again. It's like getting fuel back in our engine and it starts to chug away, and the engine starts to sound good again and everyone is happy again. That's when perception becomes reality. So this bailout is crucial to bringing confidence not just to the stock market and to the safety of our money in our banks, but to the overall psychology and how we're feeling about how it's being addressed right now, today."
WHAT IS NEXT
Many folks are wondering, if any bailout bucks will float their way more directly, in the form of a second stimulus check. Stay tuned for more updates. And let MainStreet know, do you think a second stimulus check is a good idea?