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Bailout

What is a 'Bailout'

A bailout is a situation in which a business, an individual or a government offers money to a failing business to prevent the consequences that arise from the business's downfall. Bailouts can take the form of loans, bonds, stocks or cash. They may require reimbursement. Bailouts have traditionally occurred in industries or businesses that are perceived as no longer being viable or are sustaining huge losses.

Explaining 'Bailout'

Typically, companies in need of bailout employ a large number of people, leading some people to believe that the economy would be unable to sustain such a huge jump in unemployment if the business folded. Bailouts are normally only considered for companies or industries whose bankruptcies could cause a severely adverse impact to the economy as a whole, and not just to the industry.

Financial Industry Bailout

One of the biggest bailouts in history was the one offered by the U.S. government in 2008 to many of the largest financial institutions in the world that experienced severe losses resulting from the collapse in the subprime mortgage market and resulting credit crisis. Banks, which had been providing an increasing number of mortgages to borrowers with low credit scores, experienced massive loan losses as many of these mortgages went into default.

Auto Industry Bailout

During the 2008 financial crisis, automakers such as Chrysler and General Motors needed a taxpayer bailout of their own to stay solvent. High gas prices at the time resulted in plummeting sales of these companies' SUVs and larger vehicles. The difficulty in obtaining auto loans during the financial crisis further hampered auto sales. While intended for financial companies, the two automakers ended up drawing roughly $17 billion from TARP to stay afloat. In June 2009, both Chrysler and GM emerged from bankruptcy, and they remain among the larger auto producers today.


Further Reading


Balance sheet effects, bailout guarantees and financial crises
academic.oup.com [PDF]
This paper provides a model of boom-bust episodes in middle-income countries. It is based on sectoral differences in corporate finance: the nontradables sector is special in that it faces a contract enforceability problem and enjoys bailout guarantees. As a result, currency …

Measuring real economic effects of bailouts: historical perspectives on how countries in financial distress have fared with and without bailoutsMeasuring real economic effects of bailouts: historical perspectives on how countries in financial distress have fared with and without bailouts
www.sciencedirect.com [PDF]
This paper provides a model of boom-bust episodes in middle-income countries. It is based on sectoral differences in corporate finance: the nontradables sector is special in that it faces a contract enforceability problem and enjoys bailout guarantees. As a result, currency …

Bailouts and financial fragilityBailouts and financial fragility
academic.oup.com [PDF]
This paper provides a model of boom-bust episodes in middle-income countries. It is based on sectoral differences in corporate finance: the nontradables sector is special in that it faces a contract enforceability problem and enjoys bailout guarantees. As a result, currency …

Political connections and corporate bailoutsPolitical connections and corporate bailouts
onlinelibrary.wiley.com [PDF]
This paper provides a model of boom-bust episodes in middle-income countries. It is based on sectoral differences in corporate finance: the nontradables sector is special in that it faces a contract enforceability problem and enjoys bailout guarantees. As a result, currency …

US banks, crises, and bailouts: From Mexico to LTCMUS banks, crises, and bailouts: From Mexico to LTCM
pubs.aeaweb.org [PDF]
This paper provides a model of boom-bust episodes in middle-income countries. It is based on sectoral differences in corporate finance: the nontradables sector is special in that it faces a contract enforceability problem and enjoys bailout guarantees. As a result, currency …

Bailouts, the incentive to manage risk, and financial crisesBailouts, the incentive to manage risk, and financial crises
www.sciencedirect.com [PDF]
This paper provides a model of boom-bust episodes in middle-income countries. It is based on sectoral differences in corporate finance: the nontradables sector is special in that it faces a contract enforceability problem and enjoys bailout guarantees. As a result, currency …

Portugal and the global financial crisis: short-sighted politics, deteriorating public finances and the bailout imperativePortugal and the global financial crisis: short-sighted politics, deteriorating public finances and the bailout imperative
www.elgaronline.com [PDF]
This paper provides a model of boom-bust episodes in middle-income countries. It is based on sectoral differences in corporate finance: the nontradables sector is special in that it faces a contract enforceability problem and enjoys bailout guarantees. As a result, currency …



Q&A About Bailout


What government actions can occur during an insolvency process?

The U.S. government intervened in General Motors' bankruptcy by providing $30 billion dollars and took over 60% ownership of General Motors. This was done because it was considered too big to fail by President Obama and his administration.

Who can take part in an insolvency process?

Any company or individual who has invested money into a company could be affected by an insolvency process if they have taken out loans with that company, as well as any other creditors who have lent money to the company for goods and services provided.

Who typically offers bailouts?

Bailouts are offered by businesses, individuals and governments.

Is it possible for an industry not to need any type of bailout ?

Yes it is possible for an industry not to need any type answer 8

How does a bailout differ from bail-in?

Bailout differs from bail-in in that bondholders or depositors are forced to participate in the recapitalization process, but taxpayers are not.

What is a bailout?

A bailout is the provision of financial help to a corporation or country which otherwise would be on the brink of failure.

Why did these industries receive federal assistance ?

These industries were

What was one of the biggest bailouts in history?

One of the biggest bailouts in history was the one offered by U.S government to many of largest financial institutions in world during 28 financial crisis. Banks experienced massive loan losses as many mortgages went into default during this period . Automakers such as Chrysler and General Motors needed taxpayer bailout for their own survival during this time period due to high gas prices resulting plummeting sales of SUVs and larger vehicles . While intended for financial companies , automakers ended up drawing roughly 17 billion from TARP fund for their survival . In June 29 , both Chrysler and GM emerged from bankruptcy , they remain among larger auto producers today .

How have bailouts traditionally occurred in industries or businesses that are perceived as no longer being viable or sustaining huge losses?

Bailout have traditionally occurred when industries or businesses are no longer viable and sustain huge losses.

What form do bailouts take?

Bailouts can take the form of loans, bonds, stocks or cash. They may require reimbursement.

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