What do think the role of government should be when it comes to 'bailing out' large corporations or financial institutions?What do think the role of government should be when it comes to...

What do think the role of government should be when it comes to 'bailing out' large corporations or financial institutions?

What do think the role of government should be when it comes to 'bailing out' large corporations or financial institutions?

Asked on by smy5861

11 Answers | Add Yours

enotechris's profile pic

enotechris | College Teacher | (Level 2) Senior Educator

Posted on

In response to #6, the government has no responsibility to ensure the health and survivability of the economy.  In fact, its attempts to do so have caused historically more harm than good.  A Free Market is what it states -- Free. That means free to succeed, free to fail, and free from government interference, including bailouts.

If companies fail, its because the Market has rejected them.  A Free Market means that consumers vote with dollars -- buying the goods and services they see fit to purchase.  Companies like Toyota producing the Prius make money because that product is in demand.  General Motors keeps losing money because its products are not in demand. A falling income should be a company's wake up call to change the way it does business, or risk obsolescence.

What's particularly egregious is that the government saw fit to allocate our tax dollars, without our say, to a company that should, by market forces, have gone under.  I would have happily taken my tiny percentage of money that went to GM and instead spent it on a car I chose to buy.

 

boblawrence's profile pic

boblawrence | (Level 1) Associate Educator

Posted on

I agree with many of the above  posts, especially about the conept that bailouts in general are a poor idea because they protect those who make bad decisions for greed.  I also agree, however, that government bail outs may be needed when the structure of our economy is at risk of collapse.  This was the case in 2008.

Much of the problem in 2008 was the fault of a government that failed in its monitoring and regulatory tasks.  The banks and credit agencies were allowed to run amok.  Bernie Madoff got away with his scheme for years after a whistle blower had alerted the SEC (who did nothing).

In the future, the government needs to ramp up their surveillance and control of financial institutions so that bail outs will not be necessary.

Finally, the government needs to do something that works to help the individuals who have been harmed by the failure of the big corporations.  How many house foreclosures could be avoided by diverting just a few billion dollars that were given to the big corporations?  Despite the government's spending of billions, the little guy is still suffering, with no hope in sight.  The American dream no longer exists!

lmetcalf's profile pic

lmetcalf | High School Teacher | (Level 3) Senior Educator

Posted on

I remember hearing that we needed to bail out some of these big companies because they are so integral to the national and international economy that they are "too big to fail" meaning not that they couldn't fail but the the government couldn't let them fail.  I think any company that big needs to be evaluated for its financial integrity and that better protections and oversight need to be present so that the risks taken and losses noted can't have that kind of momentous impact on the overall picture. 

belarafon's profile pic

belarafon | High School Teacher | (Level 2) Educator Emeritus

Posted on

A larger problem with the entire bailout mentality is that it insulates people and corporations against failure. We are losing the mindset that failure is a bad thing; if you make a bad decision and then the government steps in and gives you money, what reason is there to strive for success? If you are unemployed and receive enough unemployment to live better than many people working minimum wage, what motivation is there to get back into the workforce? The issue of bailouts is enormous and covers books, but the issues of motivation and failure are major as well.

brettd's profile pic

brettd | High School Teacher | (Level 2) Educator Emeritus

Posted on

There really isn't a simple answer to this, much as we might like to think there is one.  Popular sentiment expresses anger that these bailouts would happen at all, given how little help there is for the individual in this economic downturn.  There is general mistrust and dislike of banks and big business anyway, as expressed in the current OWS protests.  But few people ask what would have happened if Bank of America had gone under?  They hold a significant number of the mortgages in this country.  Would we have been better off to let pure capitalism and economic natural selection to run its course?  I'm not sure we would have been. 

The bailout/buyout of General Motors, on the other hand, has been largely successful.  Tens of thousands of jobs were saved, and the spending and taxes this has continued with those employees has probably already paid for much of the bailout.

So it would be nice if the government never had to step in, but the idea that government and business are exclusive of each other in the modern American economy is naive at best.

stolperia's profile pic

stolperia | (Level 1) Educator Emeritus

Posted on

It is, indeed, a case of "between a rock and a hard place" for the government. I don't pay enough attention to what most "tea partiers" say to know if any of them have expressed an opinion - do they feel the government should have stayed out of it and let the financial institutions and the auto manufacturers go down? My impression is that they advocate absolutely no government support for anything, which to me implies that they would have allowed all the unemployment and international economic consequences to play out. I happen to feel the government does need to selectively become involved...the hard part is determining when to do so and how to insure accountability for the money provided.

accessteacher's profile pic

accessteacher | High School Teacher | (Level 3) Distinguished Educator

Posted on

There is a massive difficulty that governments face in these situations. On the one hand, they have a responsibility to ensure the continued survival and good health of their economy, and this therefore indicates that they should have the responsibility of bailing out companies. On the other hand, if they continually bail out companies, it encourages these companies and banks to deliberately take stupid risks that jeopardises the health of the economy as they know that the government will help them if they are in trouble. The government therefore is between a rock and a hard place in this situation. It has a responsibility to help, but not to help too much so that such companies and banks remain accountable for the situation in which they find themselves.

kplhardison's profile pic

Karen P.L. Hardison | College Teacher | eNotes Employee

Posted on

Personal opinion, not spoken as an economist nor an expert in government, I believe the government does well to bail out troubled economy and the individual components (corporations, banks, etc). The truth is that had the government not negotiated bailouts of entities like Bear Sterns, for example, the threat of a global financial collapse loomed as a living, breathing dragon at the necks of the nations. Plus it is critical to save jobs to save the economy from a repeat of the 1930s. And the government did this. Of course it is harder to be successful now than in FDRs time because of the magnitude and complexity now present, but, nonetheless, the effort is needed.

readerofbooks's profile pic

readerofbooks | College Teacher | (Level 2) Educator Emeritus

Posted on

I agree with the three posts. We should not bail out large companies generally speaking. There are a few reasons for this.

1. Banks and corporations has failed in the past and they will continue in the future. So, get the incompetent people out and get competent people in. With bailouts you do the reverse! You take money from hard workers and fuel incompetent people.

2. The rich get wealthier and the poor get poorer, enough said on this one.

3. With more bailouts, there will be more inflation later on. Bailouts usually are accompanied with printing of more money.

litteacher8's profile pic

litteacher8 | High School Teacher | (Level 3) Distinguished Educator

Posted on

I don't think the bailouts worked.  There needs to be more accountability for how the money is spent.  Corporations should not be able to spend the bailout funds on fancy retreats or bonuses to corporate officers. If the company has money to spend on this, it does not need a bailout.

pohnpei397's profile pic

pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted on

Ideally, the government would have to role in this.  Bailing out these sorts of firms creates "moral hazard" and makes it more likely that firms will take unwise risks.  They will know that if their risks pay off, they get the profits but that if they lose on their "bets" the government will cover their losses.  This would lead to firms doing riskier things.

However, there are times when it is important to bail out firms, even at the risk of creating moral hazards.  I believe that 2008 was one of those times.  At that point, it was not just single firms that needed bailing out--it was a whole industry.  Had the whole financial industry (and perhaps the whole auto industry) fallen apart, the US could have been facing a terrible depression.

What the government should do is to try to ensure that firms like those in the financial industry cannot do things that cause them to put the whole American economy at risk.  This would be better than having to bail them out after they make mistakes.

We’ve answered 318,991 questions. We can answer yours, too.

Ask a question