Should Government Bail Out Big Banks?

Should Government Bail Out Big Banks?

In 2008, America experienced the biggest meltdown
of its financial sector since the Great Depression. The conventional wisdom is that this failure
and subsequent government rescue, commonly known as “the bailout” was brought about by
three decades of bank de-regulation. There were a lot of causes for the meltdown, but
deregulation wasn’t one of them. Ironically, it wasn’t because the banks had become unmoored
from government control that led them into the financial storm, it was because they had
become too closely tied to government. For three decades Uncle Sam, like an enabling
parent, had always “been there” when the big banks got into trouble. The shock in 2008
was that for one brief moment, Uncle Sam wasn’t there. In the wee hours of September 15, 2008, Lehman
Brothers filed for bankruptcy. The financial industry waited for the Feds to step in and
save Lehman bondholders like it saved those of Bear Stearns some months earlier. That
didn’t happen. Global financial markets seized up. As the Dow Jones Industrial average fell
498 points, or nearly 4.4 percent, financial institutions effectively went on strike. Banks
wouldn’t lend money to other banks and thus, indirectly, to the public because they had
no idea which financial institution might go belly up next. The economy can withstand
a stock-market crash, but a credit-market freeze — essentially a cash freeze — can
cause a Depression, as credit underpins almost all business and personal activities. Indeed,
some large companies, including General Electric, were so dependent on these short-term credit
markets that they were in danger of not being able to pay their workers. The financial industry pleaded with the government
to act. Later in the same day, September 15, it did. The Feds wouldn’t save Lehman’s but it would save AIG, the primary insurer of mortgage loans. A month later, the Troubled
Asset Relief Program (TARP), a $700 billion plan to pump taxpayer cash into America’s banks and financial institutions was approved by Congress. Public officials generally agreed that the
free market had failed. In November 2008, President George W. Bush came to New York
to explain why he, a Republican president, had signed TARP into law. “I’m a market-oriented
guy, but not when I’m faced with the prospect of a global meltdown,” he said. But free-market capitalism had not melted
down. Again, the problem was not that banks had been too free, but that they had grown too dependent on government over the last few decades. Here’s a brief history. America’s first post-Depression bailout of
a big bank came in 1984 when the Republican administration of Ronald Reagan, with help
from the Federal Reserve bailed out Continental Illinois, the eighth largest commercial bank
in the nation. The bailout introduced the phrase “too big to fail” to the financial
media’s vocabulary. The premise for rescuing Continental was simple:
the bank had many global bondholders, big investors, and the government feared that
the bondholders might pull their money out of all American banks if they saw that a bank
like Continental could fail. That might have stemmed a short-term panic, but it created
a long-term monster. The government had effectively said to financial markets: if you lend money
to a big bank, it’s just like lending money to the U.S. Treasury — only it’s better because
the banks will pay you more interest than you can get from your Treasury bonds. And so money poured in from investors. The
banks got bigger… and more reckless. And when the next crisis rippled through the financial
industry, there was Uncle Sam, ready with his checkbook. In 1998 the government, this time under Democrat
Bill Clinton bailed out Long-Term Capital Management, a hedge fund that teetered at
the edge of bankruptcy and threatened to drag some big banks down with it. The message to
the banks was clearer than ever: take bigger risks. Uncle Sam would be there, if any thing
went wrong. Indeed, as I noted, early in the crisis, in
March 2008, the government brokered the purchase of the Bear, Stearns investment bank (to JP
Morgan) to save its bondholders and other creditors from suffering huge losses. And
that summer, Washington rescued Fannie Mae and Freddie Mac, the giant government sponsored
mortgage companies. It’s the fact that the government didn’t rescue
Lehman Brothers that set off the 2008 panic because the financial world simply assumed
that Uncle Sam would. Would we have been better off had the government saved Lehman’s? Maybe
in the short run. But it’s likely that crisis would have occurred anyway. Because banks
assumed that the government would always bail them out, their risk models by 2008 were all
out of whack; conservative practices, like lending only to credit-worthy borrowers, a
relic of the past. What’s the solution? How do we bring sanity
back to the financial industry? Not by passing thousands of new regulations. The banks’ army
of accountants, lawyers and lobbyists can always work their way around those. The solution
is that the government must stop guaranteeing the big banks’ losses. Only then will bondholders,
the big investors like pension funds and insurance companies, who lend the financial sector the
money they need to operate, have an incentive to police the industry. It’s that simple. I’m Nicole Gelinas, a senior fellow at the
Manhattan Institute, for Prager University.

100 thoughts on “Should Government Bail Out Big Banks?

  • Not just NO, but 'HELL NO'. I don't see ANYTHING in the constitution authorizing stealing taxpayer money to bail out any bad bank business.

  • Satan wishes he could bail out of his predicament. That being will see God as fire one day not Knowing when. Satan invented money so people will feel the same anxiety. Ask and receive will eliminates that anxiety. Freely we have received all thing, freely give. The nation's need to work together.

  • Awesome videos, but you also provide links to sources or some kind of bibliography for further reading. The five minute videos are fantastic, but I'd like to become more educated on a lot of these issues

  • 700 billion of tax payer money given to corporations without the consent of the people. Talk about democracy my ass.

  • USA financial system isn't equipped to deal with big banks. It is a monopoly. it is like your only son being addicted to drug and u can't just kick him out and let him die.

  • I remember the 2008 recession my mom and pops jobs we’re affected we almost sold our 200K house because we were behind on mortgage

  • I like to compare it to a gambler at a casino. Every theme the gambler runs out of money the government gives him more and tells him to be more careful. But with the confidence of reimbursement, he instead goes back to risky gambling. Knowing that if he were to fail he would receive enough money to keep going and therefore there is no risk in any investments he makes. Only reward. But eventually the bailout money will run dry.

  • First the people need to find the constitutional resolve to take back their government, which has long been held hostage by the politi-criminals, who have manipulated public servitude into their own self-proclaimed kingship, infested with the finest criminals of the wealthy retarded elite that public stupidity can buy! ( elect)
    When a country’s government becomes the biggest criminal entity in the nation, it will trickledown into society’s financial infrastructure and everywhere else in between.
    The trickledown effect of a corrupt government, will consume every part of our structured society, from the biggest to the smallest and anywhere else a profit can be turned, by whoring the public out to ignorance.
    Throughout human history the governing retarded rich have brought more ruin, war, famine, and death upon society than anything else in the world.
    They are the worlds worst unnatural disaster.

  • We shouldn’t bail out banks whole rely on government to lend them money when shit hits the fan, we should try and make the banks work with investors; not with tax payer’s money.

  • How did that Continental sth bank came into trouble in the first place? And yeah, the goverment created and rated the CDOs, sure.

  • They may of depended on the government, but they still acted recklessly because of the lack of regulation so it's both. If there was regulation that came with the money then we wouldn't of had the issue. So you can't rule out that it wasn't because it wasn't regulated.

  • I love how they are so against bailouts but don’t have a problem with money in politics. Who the hell is telling these politicians to bail the banks out?! The lobbyists who they mentioned. That doesn’t even compare to the fact that the banks were able to take risks because of deregulation!

  • Government should NOT bailout big banks and corporations.
    Corporations and should not be lobbying the government.
    No lobbying. No bailouts. No corporate welfare.

  • Great video about banks and how the government should hands off the free market economy. They are too Afraid that banks will stop lending? Are we that entrenched in loans to to the point where if the lender go out of business that people won't make purchases? We have a debt problem that we need to reduce dependence on debt so that people can finally see some real money.
    Important questions to ask:
    Can the majority buy a reasonable home without a mortgage loan? We rent at this point.
    Can people buy cars with no loan? My dad bought many.
    Can people buy any of their basic needs without loans and have some cash available for emergencies such as car breaking down or losing a job?
    Those questions are important and there is an effort going toward independence from debt: watch those videos and take a look at their principles.

  • So basically this practice has been made regular and now credit and the economy is dependent on banks taking big risks and hopefully scoring but when it drops hard the taxpayers money is used to bail out banks. If you simply “let them fail” as many wished then the economy goes with them. It’s not simple because of the ties that have been made between government, the fed, the banks, and money. Tbh I’d rather have my money going into my money being held up somewhat in value than being spiraled into socialist hell

  • Base our currency on gold and silver, like it used to be. Then, we would have interest free money as was stated in our Constitution and much fewer market fluctuations and no manipulation on the value of our money. We would also have very little credit debt and no National Debt, the Deficit, either. What you worked for can not be so easily stolen by Wall Street. John Kennedy was going to do away with the Federal Reserve and see what happened to him!!! The Federal Reserve is a secret corporation who produce our paper currency that is based on nothing!!!

  • Our government should control the safety of our Money especially since they change loan rates and interest rates and better stimulate our economy

  • What is interesting about all of this, is that it would be VERY painful for us – the general population – to take the blow if the govt had not rescued the banks. Massive global meltdown would create huge problems in the streets – BUT it would still have been the right thing to do. Suffer in the short term, in order for things to work out in the long run. Govt has now just pushed the problem further down, and made the MONSTER BIGGER!

  • Would be a shame if rich people had to make intelligent thought out choices with the fear that they might have something to lose if they made a bad call…you know like the rest of the world.

  • Dear Prager… I'm going to assume we can at least agree that the Trickle down economic policy that was started some 40 yrs ago has been an utter failure right ? That in fact if we cut taxes on those who we have cut taxes on repeatedly over the past 40 yrs that it does in fact NOT flow down . That easing regulation does NOT in fact spur job growth no more than easing EPA regulation clean's up polluting corporations . That allowing Company's to set there own regulation's does in fact 100% lead to more problems not less.. Oh sure less problems for corporate interests but normally much more for society to clean up . So maybe you can help me to better understand if this system is the be all & end all why we are in the condition we are in and maybe you can help me to understand why such a hard brutal fight from the Neo Cons has be underway since the Powell memorandum made it's way out onto the Desk's of Boardrooms all across america . Because just reading it smack's of disdain for the very people who by hand made the country what it is . It read's like some invasion force blueprint for take over but from within ? You see fella's I'm of a mind that had the level of drunken lust for power & Greed observed been tempered with some mature wisdom by the Big name's in Royalty the working class might have just gone right on believing in the "American dream" this fraud could have kept right on going but no I guess that would have been asking to much , all that was necessary was toss them a bone every now & then make them "feel" like they won something like lower petroleum prices or healthcare & wages looking back & considering the Quarterly fiscal profits of all concerned you could have easily allowed it and still handed out billions in CEO options & Bonus check's but I sense some serious greed was afoot Because you can't look Me in the eye and tell me this level of economic destruction was all some how just a big magical coincidence .. I'm sorry NO WAY.. This came out of a well planned & executed playbook that some people wrote compiled however you want to call it ..And my only question would then be why ? Have we not seen in the past what happens to the "Royal " very top when the people get pushed to the point of ? That what come's after is both brutal & so not necessary has nobody learned anything from history Or is the shear level of arrogance so profound that the "This can't happen to us" because WE think of everything gone into effect .. Our history books are filled with those who figured It can't happen to Me …How any of you so called educated adults can possibly think this end's well for you is just amazing ….Have you not noticed the ONLY way the Neo con Republicans win is by fraud / Mistruths or jury maundering ..Because a straight up legal vote without any fraud any BS of any kind and we know which way society votes You see fella's if there were more of you then WE the people you would have your perfect world ..There would be the Bazillionares and the working poor living in Rack em stack housing … I just really do not see any of this ending very well at all …So you either ramp up your "Vaccination efforts" to "keep us healthy" Or spray us all down twice a day with Round up …But this hysterical video is proof you are still perpetrating this fraud ..WE know for a fact who created the depression of the 30s and we know what the Rothchilds Bank did to start WW1 and how they actually lent vast sums to both side during the war maybe you forgotten what Prescott Bush did with Union bank funds & Germany you see Prager Normal people believe Banks should sell service ..NOTHING more that they should work within guidelines but greed getting the better of them screws them every time . Why you can see this is amazing to me ?

  • The realilty is that no bank will be ever allowed to fail no more just because of the chain reaction effect.

  • Stop guaranteeing losses? Keep dreaming. If they wanted that, they'd have passed a law saying so. The bankers are in bed with the politicians and always will be. Bailouts will always be an option.

  • No, it's not that simple, the basic fact that if the banks fail, the country fails, which will make it the country's problem to save the banks.
    Some industry are so important that it requires direct regulation, like energy and finance. If the military is owned by the government, why can't the banks be owned by government?

  • For PragerU extreme right organisation it's always the fault of government and never big banks and fat cat corporations

  • Politicians often shame the working poor using welfare…..Then, argue for corporations and bank bailouts while labeling social safety programs as SOCIALIST……shameful corruption

  • Ah Prager U, clear and simple every time. Plus I just watched earlier today an interview of Thomas sowell saying the exact same thing.

  • It sounds to me like they needed to start with a lot much more of a long term view a lot sooner, a better agreement with the banks, and a lot more consideration given to the decisions being made.

  • guarantee big bank from bail out is socialist policy. let the market works, don''t interfere the market because it will make fool people take control. in the end of the day fool people will destroy us.

  • Ron Paul wrote an excellent book called "End the Fed." LibertyPen has a video called "Milton Friedman The Lesson of the Federal Reserve" The Federal Reserve System was established to prevent bank runs and bank failures that happened during the Great Depression, but they made it worse. The Federal Reserve was actually responsible for the depth of the Great Depression by reducing liquidity.

  • Yea and George Bush and his son did the WAR on Iraq and bailed from the money they stole from Iraqies and destroyed Iraq for Ever..

  • Prager U what the F are you talking about? Trying to frame the bank failures as a result of dependence on government intervention is not only fraudulent and not based on any fact, but irresponsible. The idiots who believe that Glass Steagall had nothing to do with the 08 crisis are the same people who caused the 08 crisis, and also think Bitcoin is a currency when it isn't. These are the same idiots like Greenspan who said the free market couldnt fail and once it failed they didnt know why. Any idiot can plainly understand that their opinions are worthless. You morons at Prager U seem to have the IQ of a silkworm, and are unable comprehend that had Glass Steagall been functioning, these banks would not be investment banks and they would not be too large to fail in the first place. And that had nothing to do with the puny Riegle-Neal Act of 1994 that did not lead banks to spread risk throughout the system.

  • This video is a LIE. The banks never got more large due to government backing. Prager doesnt back any of this up with data, because they cant. It doesnt fit with their bullsht narrative about "if only the government was smaller and didnt regulate businesses" They got large because they are operating as investment banks using our deposits as free gambling money!

  • Prager U is the dumbest most clueless publication on the Intenet. If you think there will be an incentive to policy the industry, you clearly are naive and clueless. Policing doesnt work, people have their own political objectives in companies, and CEOs get golden parachutes if they cause wrongdoing. No one is responsible for anything at these companies and executives come and go, and will do anything they can to suck the cream off the top of their companies at the expense of everything else. You will see a complete breakdown of the system long before anyone decides to police anything. And what about incompetence? These banks cant even keep their web sites running properly without it being down or hacked.

  • This video contradicts itself. It says the market should be free of government intervention and there should be incentives to police the industry. The banks already have an incentive to policy the industry: it's called LOSSES!!!!!!!!!!! For all your free market idiots LOSSES are the biggest incentive NOT TO BE RECKLESS OR RISKY. Do you think losses stopped these idiots from gambling like the clowns that they are? Of course not. Wall Street is like a bunch of 5th graders unable to control themselves and someone has to save them from themselves. The industry is greedy, reckless, and incompetent. Dennis Prager go back to college and get a real education, not a pseudo education that you peddle online to people without critical thinking.

  • PragerU is a very low IQ channel which doesnt even make logical sense. There is no big government or small government, there is only good government and bad government. Size is irrelevant. Got it?

  • Its not enough that you should let the banks fail, you also should have held those who ran the banks and took unnecessary risks to be accountable for their reckless and immoral behaviors; but instead, they all got their golden parachutes.

  • Billionaires are going to suffer the consequences of their own actions (ie., getting too greedy)? That is totally unacceptible. American taxpayers must suffer those consequences. You might be done with the banks, but the banks are not done with you.

  • Instead of bailouts for companies, it should have been for the people.
    If middle income people with a mortgage had been given grants to payoff all Credit Debt, that would have been way Cheaper. And the banks would have been paid for those loans in full.
    And that would have boost the economy.
    Many of those loans where given to people the banks knew couldn't afford them.
    Instead, Obama bailed out the banks and people got their homes foreclosed.
    The banks then turned around and re-sold those homes to more people who couldn't afford the loans.

  • If Fannie Mae and Freddie Mack weren't saved, how many American citizens would have lost all their money? Are we sure that the concerns raised by the government were not legitimate?

  • The ultimate question is can government keep bailing out big banks, and the answer to that is "NO". Like the martingale gambling strategy they are putting their entire bankroll on the line for the sake of a small gain.

  • You see this is why people are getting fed up with the Republican Party and democrats too. We the people are taxed for everything our schools are failing our roads are broken. We have people who need health insurance yet we claim we don’t have money but yet billions of government bailouts to GM Banks I’m tired of this chrony capitalism

  • During the Obama years, people like Barney Frank asked/forced banks to take risky loans.  At least I essentially think something of that nature took place.  What role did that play?  Did that form of government intervention have negative results?

  • The Government should have rounded up and frozen the assets of every top individual that ran off with the money, then sort out how much (or little) of their total assets each individual could keep (as long as it did not exceed 1% of that total)

  • I heard it was caused by the government forcing banks to issue homelones to minorities who had insufficient income, no assets or collateral. The banks intern bundled up these dodgy mortgages into large financial securities & sold them on to unsuspecting international clients. (can't say I blame them for it either) as & when these unsustainable mortgages started to default, the securities became unsafe investments.

  • NO and neither Wall Street. They call themselves private but when they crash the market they hand their hands out as victims.

  • The Government should have rounded up and frozen the assets of every top individual that ran off with the money, then sort out how much (or little) of their total assets each individual could keep (as long as it did not exceed 1% of that total)

  • I think they should have been allowed to fail in the beginning. Maybe then today it wouldn't be as big of a deal to the whole of the people in existence in this country and maybe we wouldn't be on the brink of another collapse even bigger than 2008. If you never fail you never learn.

  • With what, imaginary money? Or what it stole from the people?? Follow the constitution DC. No bailout, no charity. Period.

  • This woman is DEAD WRONG – she claims that regulations are useless because banks will go around them (FALSE – companies DO NOT SIMPLY GO AROUND REGULATIONS in industries medicine, food safety, energy, etc.) and that if banks are not guaranteed to be bailed out by the governments they will not have a moral hazard and act in their own self interest. We tried this experiment in the 1920s – WE HAD NO regulation and banks and the banks knew they would not be bailed out in the 20s ….and guess what??? we had rampant fraud and fake paper gains in the 1920s which lead to the great depression.

    Why is this lady against regulation? She's LYING when she says regulations do not work.. she knows they work…..she is against regulations because It is ideological! she believes in free markets (I do also) and is against the government interfering in banking activities because she hates the government doing anything (as do most conservatives) – I can get why that i can believe in banking regulation AND free markets simultaneously (basically has to do with conflicts of interest – if a bank is a Principal AND an Agent, or is both trading securities for itself and for clients while being a corporate advisor to corporations and individuals, it will have a conflict of interest) and conflicts of interest that are exploited are INHERENTLY not part of the free market ( a free market must have each participant with equal and symmetrical information and understand what other interests it's bank has when it does business with it)

    This lady clearly did not study behavioral economics or finance – she believes in the old school ALL government intervention is bad NO MATTER WHAT

    I studied economics undergrad and have an MBA in finance and work in banking – I just don't understand how this lady can ignore so many arguments and facts while being purely ideological

  • So stupid explanation, that the problem was that goverment bailed out bancrupt bank. So you offer them not to bailed out bank – so that will be no banks at all, so how goverment can be reason of financial crises if banks always scruwed up.

  • What!? So it's the government's fault that investment banks got away with selling people junk investment product at a triple A rating only to turn around and bet against those very products? It's the government's fault that banks decided to just give people loans even when they knew they couldn't pay them back? I love how, "The banks got more reckless" comment is just something they say quickly and gloss over as if that wasn't actually the entire problem to begin with. The government was there to help just in case and the greedy bankers took advantage of it and exploited it. That's not the government's fault.

  • In Scandinavia, people's deposits are bailed out, up to about 10 000 USD. But the banks usually aren't. That's a good thing.

  • If government let the all the bank fail would that effect all the businesses, and they would in turn all fail too. And would that mean everyone who have no job? Is that similar to great depression?

  • These are private businesses. Stop the government from forcing them to make sub-prime loans, less regulation and allow them to fail if they make poor business decisions. But government must stop forcing them to use bad business practices.

  • The banks should've had more regulation that stop them from giving out reckless loans in the first place. It's not like the banks wanted to depend on uncle Sam in the first place. It reached a point were they were so certain that they will get there money back that they would give out a loan to basically anyone without even doing a background check.

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