Nigeria: Underbelly of a Curious Nigerian Bailout

Following a global economic recession in 2008, then Secretary of the United States Treasury under the George W. Bush administration Henry Paulson proposed a plan to recapitalize the U.S. financial system. It was a backup planwhich eventually became the Emergency Economic Stabilization Act of 2008, aka the bailout. The Plan was a call on the US government to buy about $500billion in distressed assets from many of the banks and financial institutions that were going under. Before the winter of 2008 when the US government took over mortgage institutions like Fannie Mae and Freddie Mac, the Lehman Brothers had become insolvent. But before the bailout indeed became effective, George W. Bush held extensive discussions with Congressional leaders including the Democratic and Republican presidential candidates Barack Obama and John McCain, who were hesitant and nervous about the bailout. As a matter of fact, the first time that the plan was sent to Congress, it was roundly pilloried and seen as a 'gun to the head' of the American people.

To understand why there was a need for the US Government to bail out these distressed institutions, we must first examine some of the events which triggered the Global recession. According to Wikipedia, from 1970 World Capital Markets were not as free as they were in 2008. The freedom that these financial institutions began to enjoy after 9/11 created a loose conglomerate in the financial system of the world economy together with a measure of recklessness. Therefore, by the time a certain Glass-Steagall Act of 1999 was repealed, banks were selling subprime mortgages as no risk investments. This eventually created a crisis in the financial system of the world, and led to 'contracted liquidity in the global credit markets' and'insolvency threats to investment banks and other institutions'.Stock markets around the world like Britain's FTSE 100 Index, Germany's DAX, and France's CAC all took adive. The Russians suspended trading in shares after the RTS stock fell drastically. Iceland's major banks put trading on ice, and began to cook up a plan reminiscent of the US bailout. Nonetheless, the bailout worked for the US and world economy. Even though the plan resulted in the fall of the US dollar against the major currencies, it created stability and stemmed the financial crisis of 2008.

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