...Government Bailouts Economist believe that allowing financial institutions and international corporations to go bankrupt could have a far reaching effect on the government and in particular on the citizens who depend on these organizations Companies such as AIG, Chrysler, Ford, General Motors, Fannie Mae and Freddie Mac should receive bailouts because they provide essential products and services for their consumers as well as provide numerous job opportunities to the citizens of the state. According to the supporters of the bailout plan, the economy needs rescue and helping out banks and other institutions in financial crisis will go far in reviving the economy as well. Take for example the case of AIG which received $85 billion bailout loan from the government in 2008. Why would the government not let the company close up? AIG can be described as 'too big to fail'. This logic is that if financial firms or corporations go under it can drag others with them (Fernholz, 2009). AIG the insurance giant provides insurance cover for major companies and individuals in the U.S and other countries. If the company went bankrupt then a lot of losses could be felt in the economy as millions of covers and policies go unpaid. While we may not be able to fully blame bankers and other corporate heads for the economic meltdown that followed a market-wide failure in 2008, but it does seem that bankers want to take advantage of profits when the economy is good and then pass the...
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...Germany's governments debt continues to increase with the Euro zone crises looming and large bailouts in being handed out.Germany's governments debt continues to increase with the Euro zone crises looming and large bailouts in being handed out.Germany's governments debt continues to increase with the Euro zone crises looming and large bailouts in being handed out.Germany's governments debt continues to increase with the Euro zone crises looming and large bailouts in being handed out.Germany's governments debt continues to increase with the Euro zone crises looming and large bailouts in being handed out.Germany's governments debt continues to increase with the Euro zone crises looming and large bailouts in being handed out.Germany's governments debt continues to increase with the Euro zone crises looming and large bailouts in being handed out.Germany's governments debt continues to increase with the Euro zone crises looming and large bailouts in being handed out.Germany's governments debt continues to increase with the Euro zone crises looming and large bailouts in being handed out.Germany's governments debt continues to increase with the Euro zone crises looming and large bailouts in being handed out.Germany's governments debt continues to increase with the Euro zone crises looming and large bailouts in being handed out.Germany's governments debt continues to increase with the Euro zone crises looming and large bailouts in being handed out.Germany's governments debt continues...
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...Dixie Coolich AA #2 11/4/14 AIG Ex-CEO Willumstad Testifies Bailout Was Only Deal In 2008 American International Group Inc., like many other financial institutions lost money during the financial crisis due to investments of sub-prime loans. In the interest of saving the company and saving the shareholders even a small portion of their invested money, AIG board of directors took a bailout package offered by the US government. The government bailout required that AIG give them control of 80 percent of their stock in return for a $85 billion loan that carried an interest rate of nearly 14 percent. “The board voted for the loan deal after exhausting private-sector lifeline possibilities.” (Zajac, 2014) At the time of the bailout the only other option for AIG was bankruptcy. “But AIG’s former chief executive officer, Hank Greenburg still owned a lot of AIG stock, and he sued, arguing basically that the government should have given AIG a nicer bailout, the way it did with JPMorgan and Citi. Other bailouts were also conducted during this crisis and with much better interest rates than American International Group Inc., received. To accomplish taking almost 80 percent of the company’s stock the board agreed to a reverse stock split making shareholders stock almost worthless. “Greenburg is suing the federal government for about $40 billion in damages, asserting that it violated the Constitution’s Fifth Amendment by taking control of AIG with “just compensation” for...
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...securities and other troubled assets in order to prevent the collapse of the U.S. financial system (Nolen). Ultimately, the policy resulted in federal bailouts intended to strengthen consumer confidence, increase liquidity, and stabilize the credit market by protecting “too big to fail” banks from failure. Supporters of the bailouts argued that, though it may not be ideal, protecting the largest banks against failure was necessary to prevent an even larger financial crisis from devastating the entire U.S. economy (Slavov). The 2008 financial crisis highlights the dilemma created by “too big to fail” banks, a term given to financial institutions that are so intertwined in the economic system that their failure would result in economy wide repercussions and ultimately give rise to a recession. This was the argument in favor of bailouts in the subprime mortgage crisis. These major banks are so crucial to the economy that if they collapse, other institutions that are financially connected to them may also fail, creating a domino effect across the economy (Leeson). As a result, many policy makers advocated in favor of creating a security net for these institutions so as to prevent against a total financial meltdown and a collapse of the American economy. An unintended consequence of the financial bailouts...
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...THE ROLE OF THE U.S. CONGRESS IN THE AUTO BAILOUT The Role of the U.S. Congress in the Auto Bailout Chandria Metevia April 8, 2012 Dr. A. Christophe General Motors General Motors Corporation (GM) is the world's largest full-line vehicle manufacturer and marketer. Its brands include Chevrolet, GMC, Buick, Cadillac, Saturn, Hummer, Saab and Pontiac, which was discontinued in 2009. Opel, Vauxhall, and Holden comprise GM's international nameplates. GM system of global alliances, GM holds stakes in Isuzu Motors Ltd., Fuji Heavy Industries Ltd., Suzuki Motor Corporation, Fiat Auto, and GM Daewoo Auto & Technology. Other principal businesses include General Motors Acceptance Corporation and its subsidiaries, providers of financing and insurance to GM customers and dealers. The company has approximately 326,000 employees. (referencebusiness.com) General Motors is one of the world's largest auto manufactures. . It was the world’s largest car maker from 1931 to 2008, when it was surpassed by Toyota (newyorktimes.com). The company was founded in 1908, and today manufactures cars and truck domestically and internationally. For most of the 20th century, General Motors was the biggest company in the industry worldwide. It not only led in automotive innovations, but it helped to define the new bureaucratic multinational corporations that shaped the post-war economy. Chrysler Chrysler LLC, for years America's third-biggest automaker, is a U.S....
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...Running head: AUTOMOTIVE BAILOUT The Automotive Industry Bailout: Rewriting History ECON 625: Managerial Economics Abstract The automobile has long been a symbol of American growth and prosperity. Throughout the 20th Century owning and driving a car was an essential part of everyday life for vast majority of U.S. citizens, but few took much time to think about how they were manufactured. Early in the 21st Century, as the U.S. economy began to trend downward, it became apparent that two of the three primary automakers were in significant financial peril. With government aid already being allocated to some of the nation’s largest financial institutions, difficult decisions had to made as to how to approach the alarming crisis at the heart of an industry woven throughout the lives of so many United States citizens. Introduction Beginning in the early twentieth century, automobile makers began marketing and ultimately selling cars to middle-class Americans. It did not take long for a deep love affair for cars to develop across the nation, and ownership became woven into the fabric of the “American Dream”. The invention of the assembly line in the 1910s made automobiles relatively inexpensive, and by 1929 it is estimated that American car companies were producing 5.3 million cars per year (Miller-Wilson, n.d.). The automotive industry surely had its share of ups and downs during the 1900’s, with two World Wars, the Great Depression, an oil crisis in the 1970’s,...
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...joining, they had a presidential election that elected a communist president. “This government took a country with excellent fiscal finances, a surplus in fiscal accounts, and a banking system that was in excellent health. They started overspending, not only for unproductive government expenditures but also they raised implicit liabilities by raising pension promises, and so forth.” ("What happened in Cyprus") Around that time, the Euro was suffering a decline in value especially in Greece. This had a huge effect on Cyprus’ economy because they are a large holder of Greek government and corporate bonds. “In fact, the fact that the value of Greek debt was written down as part of the bailout deal for Greece actually meant that Cyprus was essentially pushed towards needing a bailout itself.” (“The Cyprus Financial Crisis”) During this difficult time, the two main banks, Cyprus Popular Bank and the Bank of Cyprus, couldn’t keep up with the losses and requested help from the government. The Cypriot government attempted to help by nationalizing the Cyprus Popular Bank but this in turn increased the national debt so much that the government needed a bailout. The government got desperate and requested help from the European Central Bank, the European Commission and the International Monetary Fund. On March 25, 2013 Cyprus received a €10 billion bailout. Their original plan to get funds to cover the bailout was by taxing the depositors from Cypriot banks. However, this was extremely controversial...
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...THE BAILOUT Understanding the bailout The turmoil in the mortgage and financial markets, but also fears of recession, have pushed the government to act in order to prevent further worsening of the crisis. As the situation was getting worse month by month, government bailing out one financial firm after another (Bear Stearns in March, AIG in September), and letting fail some (Lehman Bros), a more global approach to address the problem was needed. The bailout proposal, initiated by the Secretary of the Treasury, Henry Paulson, a former executive of Goldman Sachs, was intended to create an entity whereas the government was going to buy those mortgage backed securities from the banks in order to provide liquidity to the banks and clear their balance sheets of these unmarketable assets. Although nobody understands exactly what the plan is and how it will help the economy, since it has changed since the legislation was passed by the U.S. Congress (angering investors in the meantime), there is a consensus that the government will have to step in to clear up the mess on “wall street” and on “Main Street”. In order to understand why there is a need for a bailout, I will retrace the roots of the crisis up to the point where the government decided to intervene. Also, I will address the issue of how the measures undertaken will impact on the banks, the credit markets, mortgage markets and the overall economy. Finally, I will provide an opinion as to why I think the bailout is...
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...represent social conservatism. Despite misplaced stigma that Republicans do not support the interests of the common people, history has shown that their view directs more to being responsible with government expenditures and justifying government activities with more than just goodwill for all citizens. The Republican Party first gained popularity through the election of Abraham Lincoln. Lincoln, as well as the Republicans of that time, was a strong anti-slavery activist. Lincoln led the way towards the end of slavery. Republican ideology brought equality to slaves. Republican ideology has also supported the people’s rights to bear arms, which has been an issue of heavy debate that finally found victory in the McDonalds v. Chicago case. The plaintiffs in the case argued that the state of Chicago had infringed on their Second Amendment rights. The Supreme Court ruled in favor of the Second Amendment and its enforcement in all states. Former Republican President George Bush was a strong supporter of the NRA and Second Amendment rights, so was Charleston Heston, a popular actor and Republican. The Republican ideology represents empowerment of the people. The Republican ideology also represents responsibility in government spending and justifiability in government actions. I have studied the history of laws and acts, and have seen that social and economical responses can cause them to be amended or...
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...these factors led to huge fiscal deficits. Greece was the first country to feel the heat due to high budget deficits. When new government came into power in Greece in 2009, it announced that previous government had fudged about the fiscal deficit, and showed it to be lower than it actually was. It was found that Greece’ debts actually exceeded the size of its economy. Seeing the higher risks associated with giving loans to Greece, lenders started asking for higher returns not only from Greece, but from other heavily indebted countries – Ireland, Spain and Portugal. The four countries are together referred as PIGS. Unlike Greece, in Ireland, government kept its spending in check but ended up in debt by guaranteeing the liabilities of banks which lost their money in property bubble burst. The high lending costs for Greece coupled with the high debt made the fears of Greece defaulting on loans real. Since the banks of Germany and France had exposure to 15% of Greece’s debt, defaulting of Greece would have affected the financial strength of their own banks and could have resulted in flight of depositors. As a result, Euro Zone members led by Germany and France agreed to provide a safety net of 22bn Euros for Greece which eventually turned into 110bn Euros bailout package by European Union and IMF by mid 2010. By the end of 2010, EU had to arrange a bailout for Ireland...
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...Bailout Money Awarded to Major Bank Executives Their Impacts on Utilitarianism and Deontology Price TUI University Abstract This paper explores two published articles that report on banks receiving billions of taxpayers’ dollars awarded from the government known as the Trouble Asset Relief Program (TARP), who in turn paid their top executives billions of dollars for bonuses. TARP is a program to assist in the stability and strengthen its financial sector by paying for bad mortgages and other trouble assets. In order to prevent economic collapse, the Bush administration changed the programs goals. (Gold, 2008) Using the TARP funds to support and pay off executive’s bonuses poses a moral dilemma within society, which I will later discuss in the paper. The purpose of this paper is to answer the question, Should top executives of the major banks that received bail-out money be allowed to receive large bonuses? I will present my personal view on the matter using the bases of my values, beliefs and research that I have done on the topic. In addition, I will explain how bailout money awarded to major bank use for executives bonuses impacts on utilitarianism and deontology. Bailout Money Awarded to Major Bank Executives and their Impacts on Utilitarianism and Deontology The United States began experiencing the recession during the early years of 2000. On September, 11, 2001 a tragedy in New York City occurred when the World Trade Center Towers were struck with...
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...for Greece started emerging when the newly-elected government realised that the country was heavily in debt. In the meantime, both Greek banks and the government were graded by rating agencies as dramatically low, as the country's debt had peaked (Tseronis 2014). Furthermore, in 2010, reports concerning accounting irregularities for the statistics which the Greek government delivered to Brussels caused the media to put Greece on the spot and raised concerns about the sustainability of the Greek debt and the country's credibility (Tseronis 2014). Thus, Greece became the first EU member to activate a bailout package from the newly set up European Financial Stability Facility (EFSF) and representatives of the European Commission (EC), the European Central Bank (ECB), and the International Monetary Fund (IMF), commonly referred to as the ‘troika’, in May 2010 (Gemenis & Nezi 2015; Tseronis 2014). Afterwards, Greece required a second bailout programme in February 2012 and an agreement that led to a third bailout after marathon negotiations, on 13th July 2015. The aim of this essay is not only to describe and analyse how Greece reached a third bailout but also to investigate if this programme could be the end of the Greek and euro crisis. It is divided into three main sectors: the first one is about the previous bailout programmes as well as the reasons for their failure. The second one analyses the present crisis, the new bailout framework and its current effects in Greece. The last...
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... This dialogue usually refers to the great economic bailout organized by the government and paid for by the people, however is not every circumstance in which the government has spent money in some way or another paid for by the people via taxes? That is an argument for another time. The next most popular economic anecdote with which the media uses to boosts its ratings is concerning the major three United States based automotive corporations: Ford Motor Company, General Motors Corporation, and Chrysler. The bailout of these automotive manufacturing corporations has stirred great debate within the walls of the Capitol. The proponents of the bailout state that even if we do not go through with a bailout for these automotive manufacturing companies, the country in some way or another will ultimately being paying the same – if not an increased – amount of money to support all of the people that will lose their jobs if these corporations are to go under (Graves). The people against the bailout say that these corporations are coming to the government due to the bailout of major banks and insurance firms and wanting “a piece of the pie” for themselves. There are also people that are in between arguments saying that the country cannot allow a bailout to these corporations until certain restrictions can be placed on the way that the corporations can spend the money – a state of mind that was likely brought on by the previous bailout scenarios; however, if restrictions are incorporated...
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...The Political Economy of the Greek Debt Crisis: A Tale of Two Bailouts Silvia Ardagna and Francesco Caselli First draft: February 2012; Final version: January 2014 Abstract We review the events that led to the May 2010 and July 2011 bailout agreements. We interpret the bailouts as outcomes of political-economy equilibria. We argue that these equilibria were likely not on the Pareto frontier, and sketch political-economy arguments for why collective policy making in the Euro area may lead to suboptimal outcomes. Most modern sovereign debt crises have been managed in Washington, DC, through the combined e¤orts of the International Monetary Fund (IMF) and the US government. A distinctive feature of the crisis that has engulfed European sovereign-debt markets since the fall of 2009 has been that the IMF has played only a supporting (albeit important) role, while the management of the crisis has been driven by European institutions: the council of …nance ministers (ECOFIN), the European Council (EC, made up by all the heads of government of the European Union) and the European Central Bank (ECB). To the extent that the IMF is largely a technocratic institution (though of course not entirely immune from political in‡ uence) while ECOFIN and the EC are made up of politicians, one may expect the management of the crisis by the EC to be more a¤ected by electoral concerns. Furthermore, since there are 27 members to the EC, representing countries with potentially di¤erent interests, one...
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...Will Greece survive the debt crisis once again? Problem Description Greece was on the verge of bankruptcy in 2010 due to the understatement of their deficit figure for years. They managed to survive this financial crisis with international bailout of 240 billion euros. Although bailouts did manage to provide some time to Greece to improve their financial position, but it came at huge expense. In order to improve the economy, it became necessary for Greece to reduce government spending and increase taxes. Consequences The international bailouts managed to delay Greece economic problem for few years but could not get rid of it completely. Moreover, the unemployment rate in Greece rose to above 25 percent during that time period. The bailouts money that supposed to improve Greece financial position was actually used to pay off debt. As a result, Greece economic situation never recovered and government still have to pay huge amount of debt to its creditors. Greece failure to reach an agreement with Europe to arrange money to pay off its debt could result in huge financial crisis and political changes in Greece as they may have to leave Eurozone and seek help from other countries. Some people believe that if Greece go bankrupt it would not have major economic impact on the Europe as it is just a small part of the euro economy and it would be better off to cut it loose. While, other argue that financial problem in Greece would have a major impact on the world and Europe specifically...
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