I get why a bailout can be important for the economy but I don’t get why the company just gets the money. Seems like tax payer money essentially is “buying” the company to me but they get nothing out of it.
Edit: whoa i woke up to a lot of messages! Some context to my question is that I am not from the US myself but I see bailout stuff in the news and as I understand it, the idea of capitalism is understood that “if you succeed then you make money and if you fail you go bankrupt and fold or get bought out” hence me wondering why bailouts are essentially free money to a company to survive which in my head sounds like its not really fair because not all companies are offered that luxury.
In: 12103
A few things.
1. The government is not in the business of owning corporations and being a shareholder. It’s not without precedent however it’s not great for the market recovery of the company. It’s better to set a repayment plan like they did with TARP on the last financial industry bailout where all the money is repaid with interest to make the taxpayer whole again.
2. The taxpayer gets a lot out of the bailout. Imagine what would have happened if the auto industry crashed and the government hadn’t bailed it out. Millions of unemployed people eating up tax dollars on unemployment for an extended period of time. Entire cities and states economies devastated, the secondary effects of all that job loss is less tax revenue, people losing their homes so on and so forth. All of which would necessitate intervention by the government to fix at a pretty hefty price tag likely far larger than the bailout cost.
3. Stop the spread. If one community bank fails and people lose faith in the security of community banks then they start pulling their money out of local banks and depositing it in Wells Fargo, Chase or BofA. This causes cascading bank failures of regional banks all across the country and a general collapse of the industry entirely which would devastate our financial markets and screw over anyone who didn’t pull their money out in time. To keep that high level of trust and prevent panic the public needs assurance that the government will step in and protect depositors even if they let the bank itself fail.
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