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Why Government Should Not Have Bailed Out Banks?

Following the financial crisis of the year 2008 and which is still affecting the global economy even today, various companies collapsed as a result of the economic recession that was witnessed all over the world. This led to the governments of some countries bailing out some of the affected companies and this can be attributed to the fact that with the collapse of these companies, the economy of various countries would be adversely affected.

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This would have been devastating especially when the world economy was adversely affected. The major companies that collapsed were located in the United States of America and also in the major European economies most notably those of United Kingdom. The major companies that need assistance from the government were the financial institutions of these countries and these included banks and insurance companies. This move by the government to bail out some companies was met with mixed reactions with some people supporting this move and other opposed to this move (Funnell, 136).

However, the government should not have bailed out these institutions especially the banks for various reasons. One of the reasons is that the move by the government was jeopardizing the ideology of capitalism while indirectly adopting mild socialism policies.

This is because in a capitalist world, the businesses should be owned individuals with very little interference from the government. However, with the government bailing out the financial institutions, the government was to own some substantial shares in the financial institutions and this means that the government would be controlling the activities of the financial institutions. This is a form of socialism and this cannot be acceptable in countries which advocate for capitalism and urges the other countries to adopt economic policies whereby there would be no interference from the government. This is one of the reasons why many people were opposed to the government move to bail out some banks (Soros, 26).

The move by the government to bail out the banks also would jeopardize the management of the banks. Like many other organizations, the management performs at optimal levels with little interference from outside and interference from the government would inhibit the performance of the management. This means that when the government ultimately pulls off, the institutions are very likely to end up in the same problems that the government helped out the institution from. This means that the government would need to run the business of the institutions even after the financial crisis is over.

The management of the organizations would need to adapt new policies which might not work well with the absence of the government. This is why many experts are opposed to the government bailing out the institutions especially the financial institutions which are very sensitive to any economy. The independence of the management will also be prohibited and this means that the government will dictate some policies which might end up bringing more problems to the institutions (García, 12).

With the institutions knowing that the government is willing to bail them out, the management would be approaching future problems with reluctance and this would ensure that the government is always bound to the institutions. This is a very sensitive issue and this means that the government would be deemed to be responsible if there is another financial crisis. It is important to note that the financial crisis started with the mismanagement of the financial institutions and this means that the management of the institutions will always have bail from the government if in the future there is another problem.

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This means that the government should not have bailed out the institutions and rather they would have started other institutions which the government would be responsible for and hence ensure efficiency. With the management knowing that the government will always be there to bail them out incase of a crisis, the efficiency of the management is likely to fall (Funnell, 136).

Another reason why the government should not have bailed out the financial institutions is that some people are benefiting very much from this arrangement and leaving the masses suffering. The proprietors of these institutions are continuing to live luxurious lives while the taxpayers who are losing their jobs due to the mistake of these proprietors are handed the burden of reviving these institutions. This is not a fair arrangement on the part of the government because the taxpayers are struggling to meet their expenses and the proprietors are suffering. This means that the government should have looked for other avenues in which other institutions would have started and it would have been very beneficial to the masses because they would also have had employment opportunities (García, 12).

Instead of the government bailing out these institutions, it would have been better if the government had initiated their own institutions which would have apart from the fact of affording the citizens employments, the institutions would also have been very efficient and hence there would have been no problems in the future. However, with the government bailing these institutions out, the suffering of the people has just increased.

Many people are of the view that these arrangement was made to protect the wealth of some of the leading businessmen in the countries. Much as these institutions are paramount to the economy of the country, the best way to handle this is by ensuring that these institutions are managed in an efficient way and this can only mean the government introducing policies which will be applicable to these institutions and geared towards ensuring that the institutions are managed in efficient ways (Read, 96).

Works Cited

Funnell, Warwick N., Jupe, R., and Andrew, J., 2009. In government we trust: market failure and the delusions of privatisation. Sydney: University of New South Wales Press.

García, José,James Lardner, and Cindy Zeldin, 2008. 1975- Up to our eyeballs: how shady lenders and failed economic policies are drowning Americans in debt. With assistance from Myra Batchelder and Jennifer Wheary. New York: The New Press. Distributed by W.W. Norton.

Read, Colin, c2009. 1959- Global financial meltdown : how we can avoid the next economic crisis. New York: Palgrave Macmillan.

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Soros, George, 2008. The New Paradigm for Financial Markets – The Credit Crisis of 2008 and What it Means, New York: PublicAffairs.

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