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

The world financial system was at risk. A global failure of banks would have done damage dwarfing the great recession.

We bailed out the banks because we **had to,** not because they deserved it.