Bailouts

Bailouts: Public Money, Private Profit

EDITED BY ROBERT E. WRIGHT
Copyright Date: 2010
Pages: 160
https://www.jstor.org/stable/10.7312/wrig15054
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  • Book Info
    Bailouts
    Book Description:

    Today's financial crisis is the result of dismal failures on the part of regulators, market analysts, and corporate executives. Yet the response of the American government has been to bail out the very institutions and individuals that have wrought such havoc upon the nation. Are such massive bailouts really called for? Can they succeed?

    Robert E. Wright and his colleagues provide an unbiased history of government bailouts and a frank assessment of their effectiveness. Their book recounts colonial America's struggle to rectify the first dangerous real estate bubble and the British government's counterproductive response. It explains how Alexander Hamilton allowed central banks and other lenders to bail out distressed but sound businesses without rewarding or encouraging the risky ones. And it shows how, in the second half of the twentieth century, governments began to bail out distressed companies, industries, and even entire economies in ways that subsidized risk takers while failing to reinvigorate the economy. By peering into the historical uses of public money to save private profit, this volume suggests better ways to control risk in the future.

    Additional Columbia / SSRC books on the privatization of risk and its implications for Americans:

    Health at Risk: America's Ailing Health System--and How to Heal ItEdited by Jacob S. Hacker

    Laid Off, Laid Low: Political and Economic Consequences of Employment InsecurityEdited by Katherine S. Newman

    Pensions, Social Security, and the Privatization of RiskEdited by Mitchell A. Orenstein

    eISBN: 978-0-231-52173-4
    Subjects: Political Science, Business, History

Table of Contents

  1. Front Matter
    (pp. [i]-[iv])
  2. Table of Contents
    (pp. [v]-[viii])
  3. INTRODUCTION To Bail or Not to Bail?
    (pp. 1-17)
    ROBERT E. WRIGHT

    The verb “to bail out” means to implement a bailout. The noun “bailout,” in this volume and I believe more generally, refers to instances when the government aids one or more economically distressed businesses in some way. Big picture, bailouts are simply one of many forms of government interaction with the economy and the producers and consumers that inhabit it. Governments proscribe certain activities—or at least attempt to. For example, they try to ban the production, sale, or use of certain chemicals, like LSD and crystal meth. They sometimes try merely to discourage consumption of certain goods, like gasoline,...

  4. CHAPTER ONE Hybrid Failures and Bailouts: Social Costs, Private Profits
    (pp. 18-47)
    ROBERT E. WRIGHT

    Economic and financial crises are one of the costs of reaping the benefits of living in a market economy. The frequency, magnitude, and severity of crises, however, are not predetermined and can be lessened with proper public policies and market behaviors. In addition, government can to a large extent control which parties will bear crisis costs. Determining the costs that ought to fall on individuals, on businesses, or on society at large is a difficult task not attempted in this chapter, which limits itself to the proposition that if the profits of a risky enterprise accrue to private entities, the...

  5. CHAPTER TWO Financial Crises and Government Responses: Lessons Learned
    (pp. 48-69)
    BENTON E. GUP

    Governments respond to real and perceived threats to the economic stability of their countries using a variety of threat-dependent methods aimed first at eliminating or mitigating the threat and secondarily at promoting financial stability and economic growth. Only then do governments address causal issues, and in a fashion that may or may not reduce the chances of future crises. The U.S. government’s responses to the financial and economic crisis of 2007 to 2009 have been no exception. The government has attempted to minimize the crisis’s considerable costs, which include lost income and employment and a rapidly augmenting national debt. In...

  6. CHAPTER THREE The Evolution of the Reconstruction Finance Corporation as a Lender of Last Resort in the Great Depression
    (pp. 70-107)
    JOSEPH R. MASON

    The Federal Reserve has come under attack in the last several decades for gradually adopting the more liberal philosophy of lending to distressed firms and industries. In the Great Depression, Federal Reserve assistance to weak financial intermediaries was almost nonexistent.¹ Many Federal Reserve officials held that “bank policy,” that is, sterilized discount window lending and open bank assistance, provided untoward insulation from competitive market responses to economic adjustments.

    Furthermore, the crises in the U.S. savings and loan and banking industries during the late 1980s and early 1990s reminded regulators that the insurance safety net underlying U.S. financial intermediaries is only...

  7. CHAPTER FOUR After the Storm: The Long-Run Impact of Bank Bailouts
    (pp. 108-145)
    GUILLERMO ROSAS and NATHAN M. JENSEN

    As we write these words, speculation mounts about the possibility that the United States government will need to intervene more forcefully to redress unabated financial distress in the country’s banking system, even after having committed $700 billion to prop up banks. The current financial turmoil illustrates the enormous costs of resolving banking crises. In the United States alone, some estimates put the total cost of buying troubled assets, loans to financial firms, and public guarantees at $9 trillion.¹ Yet, there is considerable concern that government-sponsored bailouts will not be entirely effective in stemming the banking crisis, while they will be...

  8. List of Contributors
    (pp. 146-152)