Too Big to Fail: Policies and Practices in Government Bailouts

Too Big to Fail: Policies and Practices in Government Bailouts

Too Big to Fail: Policies and Practices in Government Bailouts

Too Big to Fail: Policies and Practices in Government Bailouts

Synopsis

Usually associated with large bank failures, the phrase "too big to fail," which is a particular form of government bailout, actually applies to a wide range of industries, as this volume makes clear. Examples range from Chrysler to Lockheed Aircraft and from New York City to Penn Central Railroad. Generally speaking, when a corporation, an organization, or an industry sector is considered by the government to be too important to the overall health of the economy, it will not be allowed to fail. Government bailouts are not new, nor are they limited to the United States. This book presents the views of academics, practitioners, and regulators from around the world (e.g., Australia, Hungary, Japan, Europe, and Latin America) on the implications and consequences of government bailouts.

Excerpt

The term too big to fail (TBTF) is usually associated with large bank failures. TBTF is one form of government bailouts, and it covers a much wider scope of organizations than banks. Following the September 11, 2001, terrorist attacks, the Federal Aviation Administration shut down all air traffic in the United States for several days. Subsequently, the government provided $5 billion in compensation to air carriers for the ground stop, and up to $10 billion in additional aid to a floundering industry.

Other relatively recent examples that reflect the wide scope of bailouts include Chrysler, the Farm Credit System, Lockheed Aircraft, New York City, and Penn Central Railroad. The bailouts were in the form of loan guarantees, subsidies, warrants, and other means. The U.S. government actually profited from the Chrysler bailout.

Government bailouts are not new, nor are they limited to the United States. In the late 1700s, the British government’s financial assistance to the financially distressed East India Company contributed to the Boston Tea Party in America. Within the last decade, government bailouts have occurred in the Australia, the Czech Republic, Hungary, Indonesia, Poland, and elsewhere.

This book presents the views of academics, practitioners, and regulators from around the globe about the financial implications of such bailouts. The views expressed in some of the articles are controversial and are intended to stimulate debate. The book should be of interest to anyone who pays taxes, is concerned about government policies, or works for the select organizations that are TBTF.

The book is divided into three parts. Part 1 gives different historical perspectives and examples of TBTF in the United States. Part 2 provides an

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