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.
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The same reason that when you go bankrupt, you’re not owned by your creditors. Bailouts aren’t done for the benefit of the officers of the company, in fact the officers of the company are usually the first ones to be relieved of their jobs.
When the Federal Reserve and the Department of the Treasury stepped in to “bail out” insolvent banks in 2008, they actually became matchmakers for those insolvent companies to pair them up with other, not-broke banks. The not-broke bank took over the loan portfolio of the insolvent bank, and then the new, combined bank was provided liquidity to survive the merger intact.
So, for example, Countrywide was taken over by Bank of America, and Washington Mutual was taken over by JPMorgan Chase. The objective of the bailout wasn’t to rescue the defunct bank’s officers, or even their shareholders, but rather their depositors and customers. I was one of the Washington Mutual customers whose funds were rescued by the bailout, and now I’m banking with JPMorgan Chase because of it.
What does the taxpayer get out of it? A whole bunch of Americans who aren’t homeless and destitute because their life savings were wiped away by a giant financial catastrope that’s not of their own making.
The same reason that when you go bankrupt, you’re not owned by your creditors. Bailouts aren’t done for the benefit of the officers of the company, in fact the officers of the company are usually the first ones to be relieved of their jobs.
When the Federal Reserve and the Department of the Treasury stepped in to “bail out” insolvent banks in 2008, they actually became matchmakers for those insolvent companies to pair them up with other, not-broke banks. The not-broke bank took over the loan portfolio of the insolvent bank, and then the new, combined bank was provided liquidity to survive the merger intact.
So, for example, Countrywide was taken over by Bank of America, and Washington Mutual was taken over by JPMorgan Chase. The objective of the bailout wasn’t to rescue the defunct bank’s officers, or even their shareholders, but rather their depositors and customers. I was one of the Washington Mutual customers whose funds were rescued by the bailout, and now I’m banking with JPMorgan Chase because of it.
What does the taxpayer get out of it? A whole bunch of Americans who aren’t homeless and destitute because their life savings were wiped away by a giant financial catastrope that’s not of their own making.
They sometimes can, usually with a stock buyout. In the example of Royal Bank of Scotland in 2008, the UK government became 82% shareholder by purchasing £42 billion of shares at 50p a share at the time (technically £5.00 per share based on share splits and consolidations to date).
Sadly, their price has never truly recovered.
Today the UK Gov’t holds a 43% stake in what is now the NatWest group.
They sometimes can, usually with a stock buyout. In the example of Royal Bank of Scotland in 2008, the UK government became 82% shareholder by purchasing £42 billion of shares at 50p a share at the time (technically £5.00 per share based on share splits and consolidations to date).
Sadly, their price has never truly recovered.
Today the UK Gov’t holds a 43% stake in what is now the NatWest group.
They sometimes can, usually with a stock buyout. In the example of Royal Bank of Scotland in 2008, the UK government became 82% shareholder by purchasing £42 billion of shares at 50p a share at the time (technically £5.00 per share based on share splits and consolidations to date).
Sadly, their price has never truly recovered.
Today the UK Gov’t holds a 43% stake in what is now the NatWest group.
>why is it not owned by the public now?
It depends on the type of bailout. It’s often a loan (that must be paid back), or a purchase of shares (which the government later sells, hopefully at a profit). Very rarely is it no-strings attached.
>Seems like tax payer money essentially is “buying” the company to me but they get nothing out of it.
Inaccurate. For example, in 2008 under the TARP program, in addition to an emergency loan, the US government bought $45B worth of preferred stock in Citigroup, a larger bailout than any other recipient in the $400B+ program.
When the government sold its stake, they had made a $12B in profit on Citigroup. Part of an overall $15B in profit from the whole program.
>why is it not owned by the public now?
It depends on the type of bailout. It’s often a loan (that must be paid back), or a purchase of shares (which the government later sells, hopefully at a profit). Very rarely is it no-strings attached.
>Seems like tax payer money essentially is “buying” the company to me but they get nothing out of it.
Inaccurate. For example, in 2008 under the TARP program, in addition to an emergency loan, the US government bought $45B worth of preferred stock in Citigroup, a larger bailout than any other recipient in the $400B+ program.
When the government sold its stake, they had made a $12B in profit on Citigroup. Part of an overall $15B in profit from the whole program.
>why is it not owned by the public now?
It depends on the type of bailout. It’s often a loan (that must be paid back), or a purchase of shares (which the government later sells, hopefully at a profit). Very rarely is it no-strings attached.
>Seems like tax payer money essentially is “buying” the company to me but they get nothing out of it.
Inaccurate. For example, in 2008 under the TARP program, in addition to an emergency loan, the US government bought $45B worth of preferred stock in Citigroup, a larger bailout than any other recipient in the $400B+ program.
When the government sold its stake, they had made a $12B in profit on Citigroup. Part of an overall $15B in profit from the whole program.
they do, the government is buying stocks, and then sells them later either back to the company or to a private investor. Most famously the AIG “bailout” netted the US ~$22 billion in profits when they sold the stock.
Also sometimes the bailouts come in the form of a loan – which comes with interest payments back to the US (e.g. when they gave chase the liquidity to buy WaMu) – again a profitable activity.
they do, the government is buying stocks, and then sells them later either back to the company or to a private investor. Most famously the AIG “bailout” netted the US ~$22 billion in profits when they sold the stock.
Also sometimes the bailouts come in the form of a loan – which comes with interest payments back to the US (e.g. when they gave chase the liquidity to buy WaMu) – again a profitable activity.
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