Bail out (finance)
Encyclopedia
In economics
, a bailout is an act of loaning or giving capital
to an entity (a company, a country, or an individual) that is in danger of failing, in an attempt to save it from bankruptcy
, insolvency
, or total liquidation
and ruin; or to allow a failing entity to fail gracefully without spreading contagion
.
" because their goods and services are considered by the government to be constant universal necessities in maintaining the nation's welfare and often, indirectly, its security.
Emergency-type government bailouts can be controversial. Debates raged in 2008 over if and how to bailout the failing auto industry in the United States. Those against it, like pro-free market
radio personality
Hugh Hewitt
, saw this bailout as an unacceptable passing-of-the-buck to taxpayers. He denounced any bailout for the Big Three, arguing that mismanagement caused the companies to fail, and they now deserve to be dismantled organically by the free-market forces so that entrepreneur
s may arise from the ashes; that the bailout signals lower business standards for giant companies by incentivizing risk, creating moral hazard
through the assurance of safety nets (that others will pay for) that ought not be, but unfortunately are, considered in business equations; and that a bailout promotes centralized bureaucracy by allowing government powers to choose the terms of the bailout. Others, such as economist Jeffrey Sachs
have characterized this particular bailout as a necessary evil and have argued that the probable incompetence in management of the car companies is insufficient reason to let them fail completely and risk disturbing the (current) delicate economic state of the United States, since up to three million jobs rest on the solvency of the Big Three and things are bleak enough as it is. In any case, the bones of contention here can be generalized to represent the issues at large, namely the virtues of private enterprise versus those of central planning, and the dangers of a free market's volatility versus the dangers of socialist bureaucracy.
Furthermore, government bailouts are criticized as corporate welfare
which encourages corporate irresponsibility.
Governments around the world have bailed out their nations' businesses with some frequency since the early 20th century. In general, the needs of the entity/entities bailed out are subordinate to the needs of the state.
Paul Volcker
, chairman of Barack Obama
's White House Economic Recovery Advisory Board, said that bailouts create moral hazard
: they signal to the firms that they can take reckless risks, and if the risks are realized, taxpayers pay the losses, also in the future. "The danger is the spread of moral hazard could make the next crisis much bigger".
On November 24, 2008, American Republican
Congressman Ron Paul
(R-TX) wrote, "In bailing out failing companies, they are confiscating money from productive members of the economy and giving it to failing ones. By sustaining companies with obsolete or unsustainable business models, the government prevents their resources from being liquidated and made available to other companies that can put them to better, more productive use. An essential element of a healthy free market, is that both success and failure must be permitted to happen when they are earned. But instead with a bailout, the rewards are reversed – the proceeds from successful entities are given to failing ones. How this is supposed to be good for our economy is beyond me.... It won’t work. It can’t work... It is obvious to most Americans that we need to reject corporate cronyism, and allow the natural regulations and incentives of the free market to pick the winners and losers in our economy, not the whims of bureaucrats and politicians."
reported that banking bailouts cost an average of 12.8% of GDP. The report stated:
deflated, resulting in a severe credit crunch
and widespread bank insolvency. The causes were similar to those of the subprime mortgage crisis
of 2007–2008. In response, the government took the following actions:
This bailout initially cost about 4% of Sweden's GDP, later lowered to between 0–2% of GDP depending on various assumptions due to the value of stock later sold when the nationalized banks were privatized.
, the United States established the Resolution Trust Corporation
(RTC) in 1989.
passed the Troubled Asset Relief Program or "TARP", funded at $700 billion. The banks have largely repaid the money and the net cost of TARP may eventually be in the range of $30 billion. The bailout of Fannie Mae and Freddy Mac, which insure mortgages, totals $135 billion by October 2010, and could be much higher, depending on the future of the housing and mortgage markets.
The issue of federal bailouts of the banks and big corporations became a major issue of the 2010 elections, with the Tea Party movement
in particular focusing its attack on bailouts.
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
, a bailout is an act of loaning or giving capital
Financial capital
Financial capital can refer to money used by entrepreneurs and businesses to buy what they need to make their products or provide their services or to that sector of the economy based on its operation, i.e. retail, corporate, investment banking, etc....
to an entity (a company, a country, or an individual) that is in danger of failing, in an attempt to save it from bankruptcy
Bankruptcy
Bankruptcy is a legal status of an insolvent person or an organisation, that is, one that cannot repay the debts owed to creditors. In most jurisdictions bankruptcy is imposed by a court order, often initiated by the debtor....
, insolvency
Insolvency
Insolvency means the inability to pay one's debts as they fall due. Usually used to refer to a business, insolvency refers to the inability of a company to pay off its debts.Business insolvency is defined in two different ways:...
, or total liquidation
Liquidation
In law, liquidation is the process by which a company is brought to an end, and the assets and property of the company redistributed. Liquidation is also sometimes referred to as winding-up or dissolution, although dissolution technically refers to the last stage of liquidation...
and ruin; or to allow a failing entity to fail gracefully without spreading contagion
Financial contagion
Financial contagion refers to a scenario in which small shocks, which initially affect only a few financial institutions or a particular region of an economy, spread to the rest of financial sectors and other countries whose economies were previously healthy, in a manner similar to the transmission...
.
Overview
A bailout could be done for mere profit, as when a predatory investor resurrects a floundering company by buying its shares at fire-sale prices; for social improvement, as when, hypothetically speaking, a wealthy philanthropist reinvents an unprofitable fast food company into a non-profit food distribution network; or the bailout of a company might be seen as a necessity in order to prevent greater, socioeconomic failures: For example, the US government assumes transportation to be the backbone of America's general economic fluency, which maintains the nation's geopolitical power. As such, it is the policy of the US government to protect the biggest American companies responsible for transportation—airliners, petrol companies, etc.—from failure through subsidies and low-interest loans. These companies, among others, are deemed "too big to failToo Big to Fail policy
"Too big to fail" is a colloquial term in regulation and public policy that refers to businesses dealing with market complications related to moral hazard, macroeconomics, economic specialization, and monetary theory....
" because their goods and services are considered by the government to be constant universal necessities in maintaining the nation's welfare and often, indirectly, its security.
Emergency-type government bailouts can be controversial. Debates raged in 2008 over if and how to bailout the failing auto industry in the United States. Those against it, like pro-free market
Free market
A free market is a competitive market where prices are determined by supply and demand. However, the term is also commonly used for markets in which economic intervention and regulation by the state is limited to tax collection, and enforcement of private ownership and contracts...
radio personality
Radio personality
A radio personality is a person with an on-air position in radio broadcasting. A radio personality can be someone who introduces and discusses various genres of music, hosts a talk radio show that may take calls from listeners, or someone whose primary responsibility is to give news, weather,...
Hugh Hewitt
Hugh Hewitt
Hugh Hewitt is an American radio talk show host with the Salem Radio Network, lawyer, academic, and author. An outspoken Republican, evangelical Christian, he comments on society, politics, and media bias in the United States. Hewitt is also a law professor at Chapman University School of Law.-...
, saw this bailout as an unacceptable passing-of-the-buck to taxpayers. He denounced any bailout for the Big Three, arguing that mismanagement caused the companies to fail, and they now deserve to be dismantled organically by the free-market forces so that entrepreneur
Entrepreneur
An entrepreneur is an owner or manager of a business enterprise who makes money through risk and initiative.The term was originally a loanword from French and was first defined by the Irish-French economist Richard Cantillon. Entrepreneur in English is a term applied to a person who is willing to...
s may arise from the ashes; that the bailout signals lower business standards for giant companies by incentivizing risk, creating moral hazard
Moral hazard
In economic theory, moral hazard refers to a situation in which a party makes a decision about how much risk to take, while another party bears the costs if things go badly, and the party insulated from risk behaves differently from how it would if it were fully exposed to the risk.Moral hazard...
through the assurance of safety nets (that others will pay for) that ought not be, but unfortunately are, considered in business equations; and that a bailout promotes centralized bureaucracy by allowing government powers to choose the terms of the bailout. Others, such as economist Jeffrey Sachs
Jeffrey Sachs
Jeffrey David Sachs is an American economist and Director of The Earth Institute at Columbia University. One of the youngest economics professors in the history of Harvard University, Sachs became known for his role as an adviser to Eastern European and developing country governments in the...
have characterized this particular bailout as a necessary evil and have argued that the probable incompetence in management of the car companies is insufficient reason to let them fail completely and risk disturbing the (current) delicate economic state of the United States, since up to three million jobs rest on the solvency of the Big Three and things are bleak enough as it is. In any case, the bones of contention here can be generalized to represent the issues at large, namely the virtues of private enterprise versus those of central planning, and the dangers of a free market's volatility versus the dangers of socialist bureaucracy.
Furthermore, government bailouts are criticized as corporate welfare
Corporate welfare
Corporate welfare is a pejorative term describing a government's bestowal of money grants, tax breaks, or other special favorable treatment on corporations or selected corporations. The term compares corporate subsidies and welfare payments to the poor, and implies that corporations are much less...
which encourages corporate irresponsibility.
Governments around the world have bailed out their nations' businesses with some frequency since the early 20th century. In general, the needs of the entity/entities bailed out are subordinate to the needs of the state.
Themes
From the many bailouts over the course of the 20th century, certain principles and lessons have emerged that are consistent:- 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. Lending into illiquidity, but not insolvency, was articulated at least as early as 1873, in Lombard Street, A Description of the Money MarketLombard Street, A Description of the Money MarketLombard Street: A Description of the Money Market is an influential book by Walter Bagehot. Bagehot was one of the first writers to describe and explain the world of international and corporate finance, banking, and money in understandable language....
, by Walter BagehotWalter BagehotWalter Bagehot was an English businessman, essayist, and journalist who wrote extensively about literature, government, and economic affairs.-Early years:...
. - 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. Ensure the extent of losses and quality of assets are known and reported by the institutions.
- 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, which receives a cash dividend over time.
- If taking over an institution due to insolvency, take effective control through the board or new management, cancel the common stock equity (i.e., existing shareholders lose their investment), but protect the debt holders and suppliers.
- Government should take an ownership (equity or stock) interest to the extent taxpayer assistance is provided, so that taxpayers can benefit later. In other words, the government becomes the owner and can later obtain funds by issuing new common stockCommon stockCommon stock is a form of corporate equity ownership, a type of security. It is called "common" to distinguish it from preferred stock. In the event of bankruptcy, common stock investors receive their funds after preferred stock holders, bondholders, creditors, etc...
shares to the public when the nationalized institution is later privatized. - A special government entity is created to administer the program, such as the Resolution Trust CorporationResolution Trust CorporationThe Resolution Trust Corporation was a United States Government-owned asset management company run by Lewis William Seidman and charged with liquidating assets, primarily real estate-related assets such as mortgage loans, that had been assets of savings and loan associations declared insolvent by...
. - 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.
Reasons against bailouts
- Signals lower business standards for giant companies by incentivizing risk
- Creates moral hazardMoral hazardIn economic theory, moral hazard refers to a situation in which a party makes a decision about how much risk to take, while another party bears the costs if things go badly, and the party insulated from risk behaves differently from how it would if it were fully exposed to the risk.Moral hazard...
through the assurance of safety nets - Promotes centralized bureaucracyBureaucracyA bureaucracy is an organization of non-elected officials of a governmental or organization who implement the rules, laws, and functions of their institution, and are occasionally characterized by officialism and red tape.-Weberian bureaucracy:...
by allowing government powers to choose the terms of the bailout - Instills a corporatistCorporatismCorporatism, also known as corporativism, is a system of economic, political, or social organization that involves association of the people of society into corporate groups, such as agricultural, business, ethnic, labor, military, patronage, or scientific affiliations, on the basis of common...
style of government in which businesses use the state's power to forcibly extract money from taxpayers.
Paul Volcker
Paul Volcker
Paul Adolph Volcker, Jr. is an American economist. He was the Chairman of the Federal Reserve under United States Presidents Jimmy Carter and Ronald Reagan from August 1979 to August 1987. He is widely credited with ending the high levels of inflation seen in the United States in the 1970s and...
, chairman of Barack Obama
Barack Obama
Barack Hussein Obama II is the 44th and current President of the United States. He is the first African American to hold the office. Obama previously served as a United States Senator from Illinois, from January 2005 until he resigned following his victory in the 2008 presidential election.Born in...
's White House Economic Recovery Advisory Board, said that bailouts create moral hazard
Moral hazard
In economic theory, moral hazard refers to a situation in which a party makes a decision about how much risk to take, while another party bears the costs if things go badly, and the party insulated from risk behaves differently from how it would if it were fully exposed to the risk.Moral hazard...
: they signal to the firms that they can take reckless risks, and if the risks are realized, taxpayers pay the losses, also in the future. "The danger is the spread of moral hazard could make the next crisis much bigger".
On November 24, 2008, American Republican
Republican Party (United States)
The Republican Party is one of the two major contemporary political parties in the United States, along with the Democratic Party. Founded by anti-slavery expansion activists in 1854, it is often called the GOP . The party's platform generally reflects American conservatism in the U.S...
Congressman Ron Paul
Ron Paul
Ronald Ernest "Ron" Paul is an American physician, author and United States Congressman who is seeking to be the Republican Party candidate in the 2012 presidential election. Paul represents Texas's 14th congressional district, which covers an area south and southwest of Houston that includes...
(R-TX) wrote, "In bailing out failing companies, they are confiscating money from productive members of the economy and giving it to failing ones. By sustaining companies with obsolete or unsustainable business models, the government prevents their resources from being liquidated and made available to other companies that can put them to better, more productive use. An essential element of a healthy free market, is that both success and failure must be permitted to happen when they are earned. But instead with a bailout, the rewards are reversed – the proceeds from successful entities are given to failing ones. How this is supposed to be good for our economy is beyond me.... It won’t work. It can’t work... It is obvious to most Americans that we need to reject corporate cronyism, and allow the natural regulations and incentives of the free market to pick the winners and losers in our economy, not the whims of bureaucrats and politicians."
Costs
In 2000, World BankWorld Bank
The World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...
reported that banking bailouts cost an average of 12.8% of GDP. The report stated:
Cases
- 1970 - Penn Central Railroad
- 1971 - Lockheed CorporationLockheed CorporationThe Lockheed Corporation was an American aerospace company. Lockheed was founded in 1912 and later merged with Martin Marietta to form Lockheed Martin in 1995.-Origins:...
- 1980 - Chrysler Corporation
- 1984 - Continental Illinois
- 1991 - Executive Life Insurance CompanyExecutive Life Insurance CompanyExecutive Life Insurance Company was once the largest life insurance company in California. Its financial problems and subsequent insolvency in April 1991 shocked its policyholders and the financial world....
, by states assessing other insurers - 1998 - Long-Term Capital ManagementLong-Term Capital ManagementLong-Term Capital Management L.P. was a speculative hedge fund based in Greenwich, Connecticut that utilized absolute-return trading strategies combined with high leverage...
, by banks and investment houses, not government (see LTCM page). - 2003 - ParmalatParmalatParmalat SpA is a multinational Italian dairy and food corporation. Having become the leading global company in the production of ultra high temperature milk, the company collapsed in 2003 with a €14 billion hole in its accounts in what remains Europe's biggest bankruptcy...
- 2008 - The Bear Stearns Companies, Inc.
- 2008 - Fannie Mae and Freddie MacFederal takeover of Fannie Mae and Freddie MacThe federal takeover of Fannie Mae and Freddie Mac refers to the placing into conservatorship of government sponsored enterprises Fannie Mae and Freddie Mac by the U.S. Treasury in September 2008. It was one financial event among many in the ongoing subprime mortgage crisis.On September 6, 2008,...
- 2008 - The Goldman Sachs Group, Inc. bailed out by the federal government and Berkshire HathawayBerkshire HathawayBerkshire Hathaway Inc. is an American multinational conglomerate holding company headquartered in Omaha, Nebraska, United States, that oversees and manages a number of subsidiary companies. The company averaged an annual growth in book value of 20.3% to its shareholders for the last 44 years,...
- 2008 - Morgan StanleyMorgan StanleyMorgan Stanley is a global financial services firm headquartered in New York City serving a diversified group of corporations, governments, financial institutions, and individuals. Morgan Stanley also operates in 36 countries around the world, with over 600 offices and a workforce of over 60,000....
bailed out by The Bank of Tokyo-Mitsubishi UFJThe Bank of Tokyo-Mitsubishi UFJis the largest bank in Japan, which was established on January 1, 2006, with the merger of the Bank of Tokyo-Mitsubishi, Ltd. and UFJ Bank Ltd. The bank serves as the core retail and commercial banking arm of the Mitsubishi UFJ Financial Group.... - 2008-2009 - American International Group, Inc. multiple times
- 2008 - Emergency Economic Stabilization Act of 2008Emergency Economic Stabilization Act of 2008The Emergency Economic Stabilization Act of 2008 The Emergency Economic Stabilization Act of 2008 The Emergency Economic Stabilization Act of 2008 (Division A of , commonly referred to as a bailout of the U.S. financial system, is a law enacted in response to the subprime mortgage crisis...
- 2008 - 2008 United Kingdom bank rescue package2008 United Kingdom bank rescue packageA bank rescue package totalling some £500 billion was announced by the British government on 8 October 2008, as a response to the ongoing global financial crisis. After two unsteady weeks at the end of September, the first week of October had seen major falls in the stock market and severe worries...
- 2008 - Citigroup Inc.
- 2008 - General Motors Corporation and Chrysler LLC- though not technically a bailout, a bridge loanBridge loanA bridge loan is a type of short-term loan, typically taken out for a period of 2 weeks to 3 years pending the arrangement of larger or longer-term financing.-Description:A bridge loan is interim financing for an individual or business until...
was given to the auto manufacturers by the U.S. government, this is referred to by most as a bailout - 2009 - Bank of AmericaBank of AmericaBank of America Corporation, an American multinational banking and financial services corporation, is the second largest bank holding company in the United States by assets, and the fourth largest bank in the U.S. by market capitalization. The bank is headquartered in Charlotte, North Carolina...
to help it absorb known losses that were much greater than revealed to shareholders incurred by its buyout of Merrill LynchMerrill LynchMerrill Lynch is the wealth management division of Bank of America. With over 15,000 financial advisors and $2.2 trillion in client assets it is the world's largest brokerage. Formerly known as Merrill Lynch & Co., Inc., prior to 2009 the firm was publicly owned and traded on the New York... - 2009 - CIT Group $3 billion by its bondholders in a failed attempt to avoid a bankruptcy. This bailout only delayed the bankruptcy.
- 2009 - DubaiDubaiDubai is a city and emirate in the United Arab Emirates . The emirate is located south of the Persian Gulf on the Arabian Peninsula and has the largest population with the second-largest land territory by area of all the emirates, after Abu Dhabi...
and Dubai WorldDubai WorldDubai World is an investment company that manages and supervises a portfolio of businesses and projects for the Dubai government across a wide range of industry segments and projects that promote Dubai as a hub for commerce and trading. It is the emirate's flag bearer in global investments and has...
bailed out by Abu DhabiAbu DhabiAbu Dhabi , literally Father of Gazelle, is the capital and the second largest city of the United Arab Emirates in terms of population and the largest of the seven member emirates of the United Arab Emirates. Abu Dhabi lies on a T-shaped island jutting into the Persian Gulf from the central western...
Irish banking rescue
Irish banks suffered substantial share price falls due to a lack of liquidity in finance available to them on the international financial markets. Currently, solvency is being revealed as the most serious concern as doubtful loans to property developers, still undeclared in bad debt provisions, come into focus.Swedish banking rescue
During 1991–1992, a housing bubble in SwedenSweden
Sweden , officially the Kingdom of Sweden , is a Nordic country on the Scandinavian Peninsula in Northern Europe. Sweden borders with Norway and Finland and is connected to Denmark by a bridge-tunnel across the Öresund....
deflated, resulting in a severe credit crunch
Credit crunch
A credit crunch is a reduction in the general availability of loans or a sudden tightening of the conditions required to obtain a loan from the banks. A credit crunch generally involves a reduction in the availability of credit independent of a rise in official interest rates...
and widespread bank insolvency. The causes were similar to those of the subprime mortgage crisis
Subprime mortgage crisis
The U.S. subprime mortgage crisis was one of the first indicators of the late-2000s financial crisis, characterized by a rise in subprime mortgage delinquencies and foreclosures, and the resulting decline of securities backed by said mortgages....
of 2007–2008. In response, the government took the following actions:
- Sweden's government assumed bad bank debts, but banks had to write down losses and issue an ownership interest (common stockCommon stockCommon stock is a form of corporate equity ownership, a type of security. It is called "common" to distinguish it from preferred stock. In the event of bankruptcy, common stock investors receive their funds after preferred stock holders, bondholders, creditors, etc...
) to the government. ShareholderShareholderA shareholder or stockholder is an individual or institution that legally owns one or more shares of stock in a public or private corporation. Shareholders own the stock, but not the corporation itself ....
s were typically wiped out, but bondholderBond (finance)In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest to use and/or to repay the principal at a later date, termed maturity...
s were protected. - When distressed assets were later sold, the profits flowed to taxpayers, and the government was able to recoup more money later by selling its shares in the companies in public offeringDirect public offeringA Direct Public Offering is similar to an Initial Public Offering in that stock is sold to investors, but unlike an IPO, a company uses a DPO to raise capital directly and without the assistance of an investment banking firm or broker-dealer...
s. - The government announced the state would guarantee all bank deposits and creditorCreditorA creditor is a party that has a claim to the services of a second party. It is a person or institution to whom money is owed. The first party, in general, has provided some property or service to the second party under the assumption that the second party will return an equivalent property or...
s of the nation’s 114 banks. - Sweden formed a new agency to supervise institutions that needed recapitalization, and another that sold off the assets, mainly real estate, that the banks held as collateral.
This bailout initially cost about 4% of Sweden's GDP, later lowered to between 0–2% of GDP depending on various assumptions due to the value of stock later sold when the nationalized banks were privatized.
U.S. Savings and Loan Crisis
In response to widespread bank insolvency as a result of the Savings and Loan crisisSavings and Loan crisis
The savings and loan crisis of the 1980s and 1990s was the failure of about 747 out of the 3,234 savings and loan associations in the United States...
, the United States established the Resolution Trust Corporation
Resolution Trust Corporation
The Resolution Trust Corporation was a United States Government-owned asset management company run by Lewis William Seidman and charged with liquidating assets, primarily real estate-related assets such as mortgage loans, that had been assets of savings and loan associations declared insolvent by...
(RTC) in 1989.
US TARP and related programs
In 2008-9 the U.S. Treasury and the Federal Reserve System bailed out numerous very large banks and insurance companies, as well as General Motors and Chrysler. Congress at the urgent request of President George W. BushGeorge W. Bush
George Walker Bush is an American politician who served as the 43rd President of the United States, from 2001 to 2009. Before that, he was the 46th Governor of Texas, having served from 1995 to 2000....
passed the Troubled Asset Relief Program or "TARP", funded at $700 billion. The banks have largely repaid the money and the net cost of TARP may eventually be in the range of $30 billion. The bailout of Fannie Mae and Freddy Mac, which insure mortgages, totals $135 billion by October 2010, and could be much higher, depending on the future of the housing and mortgage markets.
The issue of federal bailouts of the banks and big corporations became a major issue of the 2010 elections, with the Tea Party movement
Tea Party movement
The Tea Party movement is an American populist political movement that is generally recognized as conservative and libertarian, and has sponsored protests and supported political candidates since 2009...
in particular focusing its attack on bailouts.
See also
- Automotive industry crisis of 2008–2009Automotive industry crisis of 2008–2009The automotive industry crisis of 2008–2010 was a part of a global financial downturn. The crisis affected European and Asian automobile manufacturers, but it was primarily felt in the American automobile manufacturing industry...
- BankruptcyBankruptcyBankruptcy is a legal status of an insolvent person or an organisation, that is, one that cannot repay the debts owed to creditors. In most jurisdictions bankruptcy is imposed by a court order, often initiated by the debtor....
- Brown BailoutBrown BailoutIn 2009 a provision was added to the Federal Aviation Administration Reauthorization Act that would have changed the conditions under which some of FedEx Corporation's employees could unionize...
- Bubble (economics)
- Cash flowCash flowCash flow is the movement of money into or out of a business, project, or financial product. It is usually measured during a specified, finite period of time. Measurement of cash flow can be used for calculating other parameters that give information on a company's value and situation.Cash flow...
- Crédit LyonnaisCrédit LyonnaisCrédit Lyonnais is a historic French bank. In the early 1990s it was the largest French bank, majority state-owned at that point. Crédit Lyonnais was the subject of poor management during that period which almost led to its bankruptcy in 1993...
- Debtor-in-possession financingDebtor-in-possession financingDebtor-in-possession financing or DIP financing is a special form of financing provided for companies in financial distress or under Chapter 11 bankruptcy process. Usually, this security is more senior than debt, equity, and any other securities issued by a company...
- Emergency Economic Stabilization Act of 2008Emergency Economic Stabilization Act of 2008The Emergency Economic Stabilization Act of 2008 The Emergency Economic Stabilization Act of 2008 The Emergency Economic Stabilization Act of 2008 (Division A of , commonly referred to as a bailout of the U.S. financial system, is a law enacted in response to the subprime mortgage crisis...
- Financial crisisFinancial crisisThe term financial crisis is applied broadly to a variety of situations in which some financial institutions or assets suddenly lose a large part of their value. In the 19th and early 20th centuries, many financial crises were associated with banking panics, and many recessions coincided with these...
- Financial crisis of 2007–2010
- Late 2000s recessionLate 2000s recessionThe late-2000s recession, sometimes referred to as the Great Recession or Lesser Depression or Long Recession, is a severe ongoing global economic problem that began in December 2007 and took a particularly sharp downward turn in September 2008. The Great Recession has affected the entire world...
- Lender of last resortLender of last resortA lender of last resort is an institution willing to extend credit when no one else will. The term refers especially to a reserve financial institution, most often the central bank of a country, intended to avoid bankruptcy of banks or other institutions deemed systemically important or 'too big to...
- NationalizationNationalizationNationalisation, also spelled nationalization, is the process of taking an industry or assets into government ownership by a national government or state. Nationalization usually refers to private assets, but may also mean assets owned by lower levels of government, such as municipalities, being...
- RecapitalizationRecapitalizationRecapitalization is a sort of a corporate reorganization involving substantial change in a company's capital structure. Recapitalization may be motivated by a number of reasons. Usually, the large part of equity is replaced with debt or vice versa...
- Stock market crashStock market crashA stock market crash is a sudden dramatic decline of stock prices across a significant cross-section of a stock market, resulting in a significant loss of paper wealth. Crashes are driven by panic as much as by underlying economic factors...
- Subprime mortgage crisisSubprime mortgage crisisThe U.S. subprime mortgage crisis was one of the first indicators of the late-2000s financial crisis, characterized by a rise in subprime mortgage delinquencies and foreclosures, and the resulting decline of securities backed by said mortgages....
- Lemon socialismLemon socialism"Lemon socialism" is a pejorative term for government support of private-sector companies whose imminent collapse is perceived to threaten broader economic stability. Some assert it is not a subcategory of socialism per se; rather, it points to a corruption of free-market capitalist systems, which...
- The Great Depression
Further reading
- "Financial crisis : Carping about the TARP: Congress wrangles over how best to avoid financial Armageddon", The EconomistThe EconomistThe Economist is an English-language weekly news and international affairs publication owned by The Economist Newspaper Ltd. and edited in offices in the City of Westminster, London, England. Continuous publication began under founder James Wilson in September 1843...
, September 23, 2008 - "Behind the Bailout" — NOW on PBS 09/26/2008
- IMF Study Laevan and Valencia September 2008
- Wright, Robert E. ed. Bailouts: Public Money, Private Profit (New York: Columbia University Press, 2009).
- Wright, Robert E. Fubarnomics: A Lighthearted, Serious Look at America's Economic Ills (Buffalo, N.Y.: Prometheus, 2010).
External links
- The Bailout Reader - A resource against bailouts from a libertarianLibertarianismLibertarianism, in the strictest sense, is the political philosophy that holds individual liberty as the basic moral principle of society. In the broadest sense, it is any political philosophy which approximates this view...
perspective - Bailout Bandwagon - Video satireSatireSatire is primarily a literary genre or form, although in practice it can also be found in the graphic and performing arts. In satire, vices, follies, abuses, and shortcomings are held up to ridicule, ideally with the intent of shaming individuals, and society itself, into improvement...
about bailouts and the economic impact on everyday citizens - Toxic Assets Reduction Plan Release by The Justice Dept: 23Mar2009
United States
- NoBailout.org - An anti-bailout website with an updated list of elected officials in support of bailout
- New Deal in the 21-st Century