Research Proposal on "Economy Bailout Too Big to Fail?"

Research Proposal 4 pages (1168 words) Sources: 5 Style: APA

[EXCERPT] . . . .

Economy Bailout

Too Big to Fail?: An Analysis of the Current Economic Downturn and the Federal Government's Response

Whether or not it was always recognized as such, the economy of a given society has always been the biggest influence on that society's growth and development. Even in pre-money tribal cultures, the amount of available resources and their distribution dictates the way of life, social stratification, and often governmental power. It is interesting to note that in certain cultures, like the Bushmen of the African plains, there is virtually no political hierarchy, and no sense of ownership. Resources are scarce, and are shared equally among the members of each group of people. As resources grow in abundance, more complex societies and hierarchies arise that develop ways of distributing these resources and wealth, and in the modern age fiscal and political policy are completely intertwined.

Few events in the modern economy have made this more clear than the current recession and the various factors that caused the massive fallout in the financial world. The government's response has consisted of some of the largest spending into the private sector that has ever occurred in this or any other nation; even Roosevelt's New Deal programs enacted during the Great Depression did not provide such large amounts of cash to giant corporations, but instead created programs for the public that provided work and opportunity. Times and situations have certainly changed since then, but not necessarily to the degree that massive bailouts have become the only reasonable means of preventing a total economic collapse. An examination of the bailout efforts quickl

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y reveals their shortcomings.

Bailouts in the Financial Sector

The bulk of the federal government's bailouts went to various entities in the financial sector, including $180 billion to insurance giant AIG, $30 billion to Bear Sterns to allow for the company to be bought by J.P. Morgan Chase, $400 billion total to Fannie Mae and Freddie Mac, $280 billion to Citigroup, and $142.2 billion to Bank of America, which managed to receive government bailout funds while buying up other failing banks and institutions (Nankin et al. 2009). The concept behind these bailouts was that by preventing such massive failures, the damage to the availability of credit could be somewhat mitigated. Except for the essential nationalization of the Freddie Mac and Fannie Mae, however, there has been very little oversight regarding how this money is spent, or how it will benefit the average taxpayer -- to whom the trillion dollars plus truly belongs.

An analysis of bailout programs in general reveals that entities with political connections are far more likely to receive bailout funds and to have fewer strings attached to such money (Faccio et al. 2009). This can certainly be seen playing out here; all major financial institutions in this country have strong political ties, and after the first few failures caught everyone by surprise none have really been allowed to take place. There is certainly a need to protect the credit market, but there is not an abundant amount of evidence suggesting that this has occurred -- the continued financial troubles of many institutions and individuals, in fact, suggests that the bailouts did little more than support massive corporate salaries and shareholder profits.

The bailouts have been called a form of "lemon socialism': taxpayers bear the cost if things go wrong, but stockholders and executives get the benefits if things go right" (Krugman 2009). It is very hard to refute this claim, especially given the current uproar regarding the… READ MORE

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Quoted Instructions for "Economy Bailout Too Big to Fail?" Assignment:

“

term paper discussing the response to the recession

(commonly referred to as the bail-out). Some possible questions to consider are:

*****¢ What have been the responses to the financial crisis?

*****¢ In what areas have these measures been successful? Why? In what areas have

these measures been unsuccessful? Why?

*****¢ What areas need more attention?

*looking for a well-thought-out overview of the

largest, most important issues and events

*Critical thinking. In addition to the information you present as facts, I*****m also

interested in how you interpret those facts. This assignment is as much about

you drawing your own conclusions (backed up by facts) as it is about

collecting and presenting those facts.

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1. Economy Bailout Too Big to Fail?. A1-TermPaper.com. https://www.a1-termpaper.com/topics/essay/economy-bailout-too-big/9939. Published 2009. Accessed July 6, 2024.

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