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 a documentary called “Too Big To Fail”

In 2008 there was a company called AIG. It’s an insurance company. They sold various insurance, including ones for big corporations.

Too many companies bought insurance from them.

If they went bankrupt, it would’ve screwed over all the companies that relied on their insurance.

It would’ve been a financial global catastrophe.

So the US bought out AIG. And eventually sold it a few years later for $22B.

.

So you can call it a bailout, but in the end the US did sell it for a profit. And if the US profits, then the people wins too.

If AIG went bankrupt, all other companies would’ve gone under too. If a lot of companies go under, then the workers would have no job. So at times, it’s better to help companies than individuals – the only problem is that companies know the loopholes to take advantage of the gray areas.