What are some advantages and disadvantages of a government bail out?
Topic: What are some advantages and disadvantages of a government bail out?
A bailout by the government comes with many short term benefits. It helps reduce uncertainty in the credit market, which makes sure that banks are still lending and borrowing from each other. Moreover, many bail-outs are not just targeted at keeping specific banks afloat, but are done with an eye on the whole economy, to prevent any major crash that might be offset. Bailouts also protect hundreds of employees from losing their jobs. In many cases, it is a service crucial to the infrastructure that is protected in a bailout.
The problems, of course, are many. A bailout may not be able to predict or address long-term economic trends, and may ultimately be no real use. Moreover, it is done using taxpayers’ money- while the returns, when an organization pays back the government with interest, can be profitable, a bailout in the middle of an impending economic crises can only mean more trouble for the government. Moreover, as the deficit only gets larger, the value of the currency will drop.
On the whole, however, bailouts also potentially aid feedback, reforms and useful changes in the economy.