Why didn't the recession top after the baol out package?



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I couldn't understand one thing about the crisis that is if US govt. came out with a bail out package in order to revive the bleeding financial institutions then why didn't the recession end at that very moment. For eg. If US govt. paid $4.5 Bn to LB, LB would have paith the $5 Bn Loan to its creditor and so on, so this cycle must have stopped. I understand the scale of the damage and other things happened such as BoA taking over Merill Lynch but why didn't the recession stop?

1 Answer(s)


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The bail out package was not big enough. The size of the package was only big enough to prevent any future damage. It was not big enough to take care of the damage already done.

Also investor sentiment had crashed by then and most investors were scared. Once fear sets in the markets it takes a while before positive sentiment returns no matter what size of bail out package is put out.