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
The idea, whether it’s correct or not is not something I’m qualified to comment on, is that the bail out would be much cheaper than dealing with the fallout of the banks failing.
So like they either spent a ton of money to prop up the banks or they banks fail and they have to spend a ton *more* money helping everyone that got screwed over.
That said, when it comes to the bailouts there’s two reasons it’s not supposed to “incentivize the mismanagement of customer funds”
First one is that a number of new laws and regulations came out that made it illegal for banks to do a lot of the crap they did back then. And while banks are definitely out for themselves they do tend to follow the law if the cost of not following it is too high.
Second, was that most of that bailout money was actually a loan. So they had to pay it back.
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