Why did the US government bail out the banks in the financial crisis of 2008? Why didn’t they just give the money directly to the people that were hurt? Don’t bailouts just incentivize the mismanagement of customer funds?

Question

Instead of bailing out the institutions, why didn’t the government just let them fail and give the money directly to the people hurt by the bank’s mismanagement? Why were the banks’ protected? Doesn’t this kind of protection incentivize banks to act recklessly in the future?

In: Economics

Answer 1

There’s good responses already but another factor is these big banks are not just US institutions but global banking leaders, letting them fail would have let foreign institutions take that role and keeping the US the leader in financial markets is of strategic interest to the US.