The Benefits of US Bailouts

Three to four years ago, the United States Government took the bailout avenue for major companies like GM Motors, and financial institutions. There are several reasons why the government chose to provide assistance to the banks and corporations that were desperately in need of funds. The government also designed and implemented other programs within the bailout to make it even more effective.
The Economy

Any government’s purpose is to provide for the whole of its population, not just the few. If it makes sense to provide funds because a corporation is in need of a loan, the government takes into account the impact the corporation’s closing will have on the employees, and other factors. In this instance, the U.S. was not only concerned about the employees. The neediest banks that used the bailout, and received approximately $45 billion in aid, were Bank of America and Citigroup. It may seem like a lot of money, but didn’t come close to American International Group, which required $182 billion. This, coupled with overseas banks failing as well, could have collapsed the economy, causing massive devastation.
Employment

An falling corporation generally shaves off the number of its employees to save money or it finds another way to downsize, such as closing store outlets. For example, GM identified more than 2,000 locally-run dealerships to close. The corporation not only stuck the small dealerships with hundreds of specialty tools they could no longer use, it contracted to independent sign construction dealers, who were directed to visit each location and physically destroy GM’s signs. But, GM also has a couple of hundred thousand employees, and is known as the world’s largest automaker. In effect, it was a wise decision to save GM as a whole, instead of just the small dealerships.
Legislative Action

Back in 1989, President George W. Bush signed the Financial Institutions Reform Recovery and Enforcement Act after the savings and loan industry was awarded a bailout. The government fine tuned the regulations in the hopes the Act would prevent further collapses. It abolished the Federal Home Loan Bank Board and Federal Savings and Loan Insurance Corporation. The government created several bodies to perform specific functions. The Office of Thrift Supervision, Federal Housing Finance Board and the Resolution Trust Corporation, and gave more responsibility to Freddie Mac and Fannie Mae to provide mortgage support to families that made low to moderate incomes.

In addition, the TARP, the Troubled Asset Relief Program, was a move the government made in the face of the sub-prime mortgage crisis. The program was endorsed into law in 2008 at a higher ticket than the Congressional Budget Office estimated earlier this year, which was $431 billion. The program allows for $700 billion for mortgages, securities and additional financial issues that could affect market stability. The assets have to be “troubled” to receive the assistance of TARP, and banks are not allowed to use the program to recoup losses.
Investment Return

The government makes loans with interest in bailouts through TARP. The U.S. and foreign banks were bailed out for a total of $245 billion. Dividends, interest and other income have amounted to approximately $13.7 billion in the $169 billion that has been paid back. Another $4 billion came back for warrant proceeds. A recoupment provision in TARP focuses on the repayment to taxpayers. Once TARP reaches its 5-year anniversary, the Office of Management and Budget must submit a financial report on TARP to Congress. The provision prevents TARP from increasing the national debt.