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Government Bailouts of Private Industry - Research Paper Example

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Date Government Bank bailouts of Private Industry Introduction Bank bailouts is the act of giving a loan or capital to an entity like a company, individual or a country that is in a danger of bankruptcy, insolvency or total liquidation…
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Government Bailouts of Private Industry
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Download file to see previous pages Therefore, this paper focuses on whether bank bailouts are good or bad to the economy. Focusing on the U.S government history of bank bailout, the Penn Central Railroad bank bailout in 1970 incurred $3.2 billion, while in 2008 the Trouble Asset Release Programme (TARP) emergency economic stabilization act made the government use $700 billion to bank bailout the banking sector from the mortgage crisis. Precisely, “the bank bailouts were adopted as a way to save the economy from collapsing” (Tully 2). The 2008 $700 billion Banks Bank bailout Analyzing the 2008 Trouble Asset Release Programme (TARP) emergency economic stabilization act, “which saw $700 billion pumped to bank bailout the banking sector from the mortgage crisis was wrong ” (Rudebusch 272). The business owners had made a wrong choice in investing in the mortgages because they did not plan strategically for the future returns on their investment. Therefore, this implies that there is a high possibility of them failing to plan again, and the government stands a chance of losing the taxpayers’ money that it had invested in the business with expectation of getting good returns on interest (Graham 14). Clearly, the liquefied bank risks the bank bailout rescue plan; unless strong strategy plans and amendments are put in the business, which might not fail again. The executives of the banks are also the members of the treasury, and they stand to gain from the bank bailout. Possibly, it is their wrong decision that led to the company’s failure. In fact, the executive members and top management were meant to be punished instead of getting the rewards from the government. These are the same people who are the members of the treasury and the economic policy makers of the government. In fact, by bailing out the banking sector, the executive members reward themselves at the expense of tax payers. The government’s involvement in the bank bailout raises some disagreements on the prevailing free market economy systems that currently exist. Other stakeholders in the market raise issues why some sectors of economy are bailed out, while others are not. They see this as unfair practice because when they have financial downtime, they face it alone without any financial assistance from the government. Often, they find it hard to compete and survive in such an economic system. Like the national reserve, the government created a high liquidity with a financial policy plan that encourages people to access mortgages, which they could not initially afford. This has led to the “fall of Fannie Mae and Freddie Mac, which have negatively affected the economy” (Rudebusch 246). The Federal Reserve Bank spent a lot of money, about $1.1 trillion on the financial institutions in exchange for the paper securities to inject into the banking system. And, the $700 billion Trouble Asset Release Programme (TARP) was added to the funds already circulated in the economy, five months before the Trouble Asset Release Programme (TARP). The $700 billion would be used on the paper worthless organizations with no possibility of good returns on the tax payers’ money. If the bank were to make money from the floated papers on the mortgage security, there would be no need for the government bank bailout; instead other enterprising institutions could have purchased those papers. But, it ...Download file to see next pagesRead More
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