Should the government bailout failing businesses - Argument aginst - Research Paper Example

But more intense debate of the present finance world is whether the decision of saving (bailing-out) these about-to-be bankrupt companies justified! The companies when fell into the trouble were within the periphery of private hands and now, when in trouble, saving them with the common man’s hard-earned money drew reservations from all concerned quarters. The money that was paid to the government to develop utility for the society is being used to discount the wrong doings of these financial giants over the years.

Prior to getting deeper into the pros and cons of the bail-out process and its affects on the falling companies and the society at large, the underlying reasons of the financial crisis might be assessed in brief. The few of the major reasons of the financial crisis are ascertained below: Housing Prices – The housing prices in the United States rose to great heights till 2006 and then suddenly collapsed from then onwards. The collapse was more than 25% and continued for more than three years. As C.I.

Jones observed, “The national index for housing prices in the United States declined by 26.6% between the middle of 2006 and the end of 2008” (Jones, 2009). Increase in Global Saving – Even a decade earlier, it was found that the developing economies of the world saved less and invested more. This rendered them to borrow funds from the world market. But as there occurred number of recessions over the period of last fifteen years, the developing economies commenced to save more. This hampered the western economies (especially United States) as it could not channelise their excess funds and earn interests.

Ultimately, the excess funds contributed towards the asset market. Subprime Lending – The hype of owning houses that existed in the United States before 2006 made almost all nationals purchase a house which often