What is Bailout?
Bailout is when a company, individual, or government provides funds or resources (also known as capital injections) to a bankrupt company. These measures help prevent the consequences of a potential downturn in the business, such as bankruptcy or default.
Businesses and governments may, depending on conditions, receive bailouts that may take the form of loans, bond purchases, stock or cash injections, and may require a refund of support from the rejected party. there is.
- Bailout is the injection of money into a company or organization that would otherwise face an imminent collapse.
- Bailout can be in the form of loans, bonds, stocks, or cash.
- Some loans require repayment with or without interest payments.
- Bailout is usually directed not only to one particular sector or industry, but to companies or industries that have a direct impact on the strength of the economy as a whole.
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Bailout is typically not just for specific market sectors, but only for companies or industries where bankruptcy can have a serious negative impact on the economy. For example, a company with a significant workforce may be bailed out because the economy could not withstand the significant rise in unemployment that would occur if a business failed. Often, other companies intervene to acquire a failed business known as a bailout acquisition.
The US government has a long history of relief dating back to the Panic of 1792. Since then, the government has assisted financial institutions during savings and loan bailouts in 1989, rescued insurance giant American International Group (AIG), and provided government-sponsored funding. Home lenders Freddie Mac and Fannie Mae, and stabilizing banks during the 2008 “too big to fail” bailout period, officially known as the 2008 Emergency Economic Stabilization Act (EESA). rice field.
During the Depression of 1792, debt from the War of Independence helped the government bail out 13 US.
Moreover, the financial industry is not the only one receiving relief funding over the years. Lockheed Aircraft Corporation (LMT), Chrysler, General Motors (GM), and the aviation industry also received government and other bailout assistance.
In 2010, Ireland bailed out Anglo-Irish Bank to more than 25 billion euros. Greece received a larger European Union (EU) bailout for around € 326 billion. But Greece is not the only country in need of external assistance to manage debt. Other rescues include South Korea in 1997, Indonesia in 1999, Brazil in 1998, 2001 and 2002, and Argentina in 2000 and 2001.
It is also essential to understand that many companies that receive relief funds will eventually repay their loans. Chrysler and GM have repaid the Treasury obligations, as did AIG. However, AIG was also assisted by more than just financial means, which are difficult to track down.
As you can see, bailouts come in a variety of shapes and shapes. Also, with each new bailout, the record book will be reopened and the new largest recipient award will be updated. Consider some of these other historic financial remedies.
Financial industry bailout
The US government provided one of the largest remedies in history in 2008 following the global financial crisis. The bailout targeted the world’s largest financial institution, which suffered serious losses from the collapse of the subprime mortgage market and the resulting credit crisis. Banks, which have provided more and more mortgages to borrowers with low credit scores, have experienced huge bad debt losses as many have defaulted on their mortgages.
Financial institutions such as Country Wide, Lehman Brothers and Bear Stearns went bankrupt, and the government responded with a large support package. On October 3, 2008, President George W. Bush signed the Emergency Economic Stabilization Act of 2008. This created the Troubled Asset Relief Program (TARP). TARP has allowed the US Treasury to spend up to $ 700 billion to buy toxic assets from the balance sheets of dozens of financial institutions. TARP paid US $ 435 billion to financial institutions. This number represents the greatest bailout in financial history to date.
Bear Stearns, one of the largest investment banks with $ 2 billion in profits in 2006, was acquired by JPMorgan Chase in 2008.
Automotive industry bailout
Automakers such as Chrysler and General Motors (GM) also went bankrupt during the 2008 financial crisis. Automakers also sought taxpayer bailouts, arguing that without them the taxpayer bailouts could not be maintained.
Automakers were under pressure as the slump in sales plunged amid the dual effects of soaring gasoline prices and the inability of many consumers to take out mortgages. Specifically, the high price of pumps caused a sharp drop in sales of manufacturers’ SUVs and large vehicles. At the same time, banks found it difficult to obtain loans, including mortgages, during the financial crisis as banks tightened lending requirements and further hampered car sales.
Targeting financial companies, the two automakers eventually floated withdrawing about $ 63.5 billion from TARP. In June 2009, Fiat Chrysler (FCAU) Chrysler and GM escaped bankruptcy and are still one of the leading automakers.
As of April 2021, the US Treasury recovered $ 377 billion of the $ 433 billion diversified, and GM and Chrysler repaid the TARP loan years earlier than planned. The US Treasury ultimately amortized approximately $ 66 billion, including a loss on shares.