1. Jennifer McConnell
Professor Brownell
ECO101
7 Nov 2013
Monday, Wednesday, Friday Class
Bailout or Fallout
The bailout of 2008 dealt with Washington Mutual, Wachovia, Bear
Stearns, Lehman Brothers, AIG, Fannie Mae, Freddie Mac (Mitchell), General
Motors and Citigroup (Peirce), among other banks, insurance companies and
car businesses. The bailout also influenced the financial system, including
commercial and household lenders (Mitchell). The TARP, or Troubled Assets
Relief Program, gave the US Treasury the go ahead to buy up $700 billion
worth of mortgage backed securities, but then decided to invest directly into
the troubled financial systems themselves (McEachern, 220). The US
government wanted to get “illiquid, hard-to-value, assets…off the banks
books (McEachern, 220).” Ultimately, the government bailed out AIG and
General Motors along with Citigroup and J.P. Morgan, and worked to save
troubled markets like the housing market (Peirce). The bailout was meant to
renew financial monies and put them into the banks to prevent more and
future failures and get banks back to making loans and lending money out
again (McEachern, 220).
When the government saved failing financial beings and worked to
improve the housing market, the 2008 crisis was only made worse and
lengthy to fix (Peirce). Bailouts mess up the proper functioning of markets
(Peirce). The bailout damaged the economy because political intervention
took the place of market forces (Mitchell). Companies don’t worry as much
about who they choose to do business with, rather, they choose to partner
with big companies-the ones who are most likely to be bailed out if they fail
(Peirce). Instead of letting businesses fail, like market forces would have
done, the government gave them money to recover, rather than
encouraging those businesses to make smart decisions to fix their problem,
or prevent it (Mitchell).
By the government given new powers to bail out, those new powers
are more likely to make economic uncertainty worse, and cause wide spread
risk (Mitchell). By implying that when a business is going under, that it can
2. get help from the government, more businesses and businesspeople are
likely to take part in risky behavior (Mitchell). This risky behavior has the
potential of not just affecting the financial sector, but even the whole
economy (Mitchell). Government intervention had the possibility of turning a
market correction into the next Great Depression (Mitchell). Some of the
businesses that received Troubled Assets Relief Program funds still get
special treatment. AIG and GM still get tax privileges that their competitors
don’t (Peirce). The bailout rewarded, in a way, businesses and companies
that made bad financial and economic decisions. The bail out “[encouraged]
reckless behavior by recipients and [imposed] an immoral burden on those
that behaved responsibly (Mitchell).”
By bailing out the financial systems, the national debt rose by 700
billion dollars. The national debt, which is a stock variable (McEachern, 82),
carries over year after year, so future generations are left to foot the bill.
Between the Troubled Assets Relief Program and later the American
Recovery and Reinvestment Act in 2008, the national debt tripled, from 450
billion dollars in 2008 to almost 1.4 trillion dollars in 2009 (McEachern, 83).
The financial collapse of 2008, of AIG, Lehman Brothers, Bear Stearns,
and Washington Mutual, which then caused the collapse of the stock market,
did affect my parents’ retirement fund. Their investments dropped by almost
half, which are just now starting to fully recover, five years later.
3. Works Cited
McEachern, William A. Econ Macro 3. Mason, OH: South-Western Cengage
Learning, 2012. Print.
Mitchell, Daniel. "Why the Bailout Is Bad for America." N.p., 01 Oct. 2008.
Web.7 Nov. 2013.
<http://www.realclearpolitics.com/articles/2008/10/financial_bailout_
would_impose.html>.
Peirce, Hester. "The Real Cost of the 2008 Bailouts." N.p., 14 Mar. 2012.
Web. 7 Nov. 2013. <http://www.usnews.com/opinion/blogs/economic-
intelligence/2012/03/14/the-real-cost-of-the-2008-bailouts>.
![get help from the government, more businesses and businesspeople are
likely to take part in risky behavior (Mitchell). This risky behavior has the
potential of not just affecting the financial sector, but even the whole
economy (Mitchell). Government intervention had the possibility of turning a
market correction into the next Great Depression (Mitchell). Some of the
businesses that received Troubled Assets Relief Program funds still get
special treatment. AIG and GM still get tax privileges that their competitors
don’t (Peirce). The bailout rewarded, in a way, businesses and companies
that made bad financial and economic decisions. The bail out “[encouraged]
reckless behavior by recipients and [imposed] an immoral burden on those
that behaved responsibly (Mitchell).”
By bailing out the financial systems, the national debt rose by 700
billion dollars. The national debt, which is a stock variable (McEachern, 82),
carries over year after year, so future generations are left to foot the bill.
Between the Troubled Assets Relief Program and later the American
Recovery and Reinvestment Act in 2008, the national debt tripled, from 450
billion dollars in 2008 to almost 1.4 trillion dollars in 2009 (McEachern, 83).
The financial collapse of 2008, of AIG, Lehman Brothers, Bear Stearns,
and Washington Mutual, which then caused the collapse of the stock market,
did affect my parents’ retirement fund. Their investments dropped by almost
half, which are just now starting to fully recover, five years later.](data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///yH5BAEAAAAALAAAAAABAAEAAAIBRAA7)