Tuesday, September 21, 2010

Recap of a Bailout

A Bailout is act of providing capital to a entity that is in danger of failing or its act of saving it from failing and there by causing less damage to others with its contagion effect.

Now Question are:
Why will anyone be ready to bailout a entity if its failing ,How can it get back its capital back?.What if the entity needs more capital than the amount supplied to it?.What is the plan of entity to repay back the capital provided?.How much can be Trusted on this entity ?

Bailing out is easy but why should some one bailout after all the entity is mismanaged its money and came into this situation and many will argue that it should suffer for its misdeeds.Generally government bailouts happen with public money and most of the cases public will be angry with govt decision.

Bailouts generally encourage corporate irresponsibility and may be give a chance for them to act irrationally as they think that government is there in back of us and nothing is going to happen.
We can see that most of Big Banks in US got Bailed out for now..but if they repeat the same mistakes by there aggressive risk taking then govt will not be in a position to bailout.

Themes for Bailout: Wiki Link
# Central banks provide loans to help the system cope with liquidity concerns, where banks are unable or unwilling to provide loans to businesses or individuals.
# Let insolvent institutions (i.e., those with insufficient funds to pay their short-term obligations or those with more debt than assets) fail in an orderly way.
# Understand the true financial position of key financial institutions, through audits or other means.
# Banks that are deemed healthy enough (or important enough) to survive require recapitalization, which involves the government providing funds to the bank in exchange for preferred stock.                                                                                                                       
# Government should take an ownership (equity or stock) interest to the extent taxpayer assistance is provided, so that taxpayers can benefit later.
# Prohibit dividend payments, to ensure taxpayer money are used for loans and strengthening the bank, rather than payments to investors.
# Interest rate cuts, to lower lending rates and stimulate the economy
And why am talking about Bailout all of sudden when season flavor is Forex market and  Ongoing Bull Market
Coz...Coz.Today i was Bailed Out by my friend Bullzzzz :) Hope i will not make the mistake of mismanaging capital and avoid aggressive risk taking. Need more clarity or if u want to share your experience then contact me at 09884839655 or plekkala.ibm@gmail.com

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