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2.7%  Q1 GDP    4.57%  avg. 30-year mortgage     9.5%  Unemployment

Why is the bailout directed at financial institutions instead of ordinary citizens?

The problem the federal government is trying to address is at the macro level. An immediate concern is job loss, said Susan Wachter, a professor at the University of Pennsylvania's Wharton School of Business.

If the financial system shuts down, financial institutions will not be able to extend credit and make basic loans. Businesses would be left without cash for payrolls, which, depending on the duration, could lead to massive unemployment and possibly a deep recession.

This intervention is an effort to turn that around," Wachter said.

Also, the idea behind the bailout is to buy the troubled mortgage assets of financial institutions so they can more freely lend money.

The ordinary citizen may benefit if everything works as planned. If money flows more freely, people looking to buy a home or refinance should have an easier time securing financing. But the bailout plan in its current form does not help the people who are in foreclosure or close to it, which is the root cause of the economic problems that have triggered these measures.

-- Washington Post Staff Writers Michael S. Rosenwald and Dina ElBoghdady

By Editors  |  September 24, 2008; 9:00 AM ET
Categories:  Your Pocketbook  
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