The recent collapse of two major banks, Silicon Valley Bank and Signature Bank, and the subsequent federal intervention to protect uninsured depositors, has reignited debates about government bailouts in the United States. From my perspective as an alien, this context has allowed me to observe that for many American citizens, the term "bailout" is equivalent to a curse word and results, for them, in an unnecessary and unjustified measure. This has sparked my curiosity, and I have decided to investigate this controversial topic more deeply from an economic perspective. In this essay, I will explain why I believe that the government should bail out failing companies.

The ongoing debate around "bailout" highlights the need for a more equitable and transparent financial system that prioritizes the needs of all citizens and in that sense, it needs a deeper understanding of the origins and implications of the term "bailout" in economics. By examining its historical origin and its role in the modern financial system, we can gain a better understanding of how government intervention can impact the broader economy and how it results in an effective tool for preventing financial collapse.

Throughout its history, the US government has provided financial aid and bailouts to a variety of industries and institutions, and the origin of what we know as " bailout " today can be traced back to the very first bailout by the American government, the Emergency Banking Act of 1933, followed by the Reconstruction Finance Corporation, which was created during the Great Depression to provide loans to struggling businesses and financial institutions, and the Chrysler bailout of the late 1970s, which helped the automaker avoid bankruptcy. However, the most notable bailouts in American history include the savings and loan crisis of the 1980s, in which the government provided assistance to failing saving and loan associations, and the Troubled Asset Relief Program (TARP) of 2008-2009 during the global crisis. Since then, the term 'bailout' has become indelibly imprinted upon the minds of Americans as something negative they do not want to live again, and in that sense has ended up turning into a vital populist tool used by many politicians, framing themselves as defenders of the people against a corrupt or out-of-touch elite, appealing to public anger or frustration, claiming that the government is wasting taxpayer money on bailing out wealthy corporations, rather than providing assistance to low-income individuals or allocating funds towards improving public services.

Let's think about the stigmatization of the word "Bailout" and ask ourselves: is it appropriate for us and our economy that the government refrain from involvement when an economic crisis requires a bailout? Additionally, what options are available to the government besides providing a bailout, and what is the actual path and procedure the government needs to follow when conducting a bailout? Well, according to Gerald Epstein, an economist, and professor at the University of Massachusetts, the use of the term "bailout" in economics is imprecise and lacks a clear technical meaning. In an article published in the Journal of Economic Issues in 2012, Epstein argued that the term is often used in a loose and inconsistent manner, and suggests that the term "bailout" can refer to a wide range of government interventions in the economy, including direct financial assistance, loan guarantees, asset purchases, and regulatory relief. However, he contends that these interventions can have different objectives, consequences, and distributional effects, and therefore should be analyzed and evaluated on a case-by-case basis.

We can realize then, that bailouts are also implemented to support small entrepreneurs and poor people in the US. Recent data that supports this conjecture include The CARES Act, implemented in March 2020, and its program Paycheck Protection Program (PPP) which provided economic relief to individuals and businesses affected by the pandemic. This included forgivable loans for small businesses, enhanced unemployment benefits, and direct payments to individuals with low income. The program was intended to help businesses keep their employees on payroll and cover other expenses like rent and utilities. Furthermore, before the pandemic, The SBA (Small Business Administration) provided loans to small businesses that are struggling to access credit from traditional lenders. These loans could be used for a variety of purposes, including working capital, equipment purchases, and real estate. Additionally, to this, among other examples, in 2008, was created the Emergency Unemployment Compensation (EUC), this program provided extended unemployment benefits to workers who had exhausted their regular state benefits. It was enacted in response to the 2008 financial crisis and was extended multiple times before finally expiring in 2014.

According to data from the U.S. Small Business Administration (SBA), as of May 2021, the PPP had provided over 11.5 million loans totaling more than $795 billion to small businesses. The EIDL program had provided over 3.8 million loans totaling more than $220 billion to small businesses. As for individuals, according to the IRS, as of December 2020, the CARES Act provided help to over 160 million individuals that received direct payments totaling more than $270 billion.

So, now we can agree that a "bailout" is not a bad thing after all and is wrongly categorized as help exclusively for millionaire big companies and banks. Generally, bailouts for large corporations, such as airlines, automobiles, and financial banking companies, tend to be seen as unfair because there is a wrong perception that bailing them out is a reward for their poor decision-making and risk-taking, and most people believe that the bailout is also unnecessary as it won't affect them. However, from an economic perspective, bailouts for millionaire corporations are necessary because if they fail, they can have a ripple effect on the entire economy, so the government has no other chance than to intervene to prevent economic collapse but also to preserve jobs and protect the interests of taxpayers.

I will explain the last two mentioned concepts in more detail with casuistry examples for better reasoning. First, when a major company fails, it not only affects the employees of that company but also the entire supply chain that depends on it. For example, if a major airline were to fail, it would not only affect the employees of that airline but also the airports, hotels, and other businesses that rely on the airline's customers. Therefore, by bailing out failing companies, the government is not only protecting the jobs of the employees of that company but also the jobs of the entire supply chain that depends on it.

Secondly, the interests of taxpayers are at stake because when the government bails out a failing company, it is not just giving money away to a private company. Rather, the government is investing in the company with the expectation of a return on investment. For example, during the 2008 financial crisis, the government bailed out major banks with the expectation of recouping the investment once the banks became profitable again. Therefore, by bailing out failing companies, the government is protecting the interests of taxpayers by investing their money wisely and expecting a return on investment.

Regarding the controversy, whether the government intervention is justifiably necessary or not, let's understand first that even though the United States, is perceived by many as the icon of a capitalist country, The truth is that the USA is actually a mixed economy, and a pure capitalist system is only a theoretical concept that is not sustainable nor even a possibility in practice in the real world. Many economists and political scientists, such as Marx, J. Keynes, and M. Friedman, have argued that government intervention is always necessary to stabilize the economy during times of recession and to promote social welfare.

Furthermore, Adam Smith, the one who first proposed the concept of "capitalism" in his work " The Wealth of Nations", argued that even though the free market and competition were the most efficient means of allocating resources and promoting economic growth ( laissez-faire theory), the government still played a minimal role in regulating business and commerce.

We can therefore conclude that government action is always required for the welfare of society since, in the absence of regulations and government intervention, companies and individuals would activelypropitiateexploitative monopolistic markets, taking negative advantage of employees and the environment. This would result in a concentration of money and power in the hands of a few, while the mass of the poor would struggle even more.

Additionally, capitalism alone cannot address issues such as healthcare, education, and social security, which require collective action and investment. Therefore, we need to acknowledge the need for government intervention to prevent market failures and ensure social welfare along with dealing with externalities, by internalizing the cost and benefits of economic activities.

Opponents of government bailouts argue that there is a moral hazard and ethical issue related to government bailouts of large corporations. They claim that such bailouts send the wrong message and encourage companies to take higher risks, assuming that failing companies are in bankruptcy as a consequence of their poor decision-making and reckless behavior.

However, this argument is flawed because, in reality, many companies fail due to factors beyond their control, such as changes in the market or natural disasters. For example, in the case of Silicon Valley Bank, the bank invested in Treasury bonds and other long-term debt, which offer low risk. Unfortunately, the Federal Reserve raised interest rates due to inflation, causing SVB's bonds to become riskier investments and drop in value. In this case, SVB's failure was caused by external factors, even though the bank took low-risk decisions. Therefore, there is no wrong or unethical message, as federal authorities ultimately a bailout towards the clients and the American economy by creating a controlled bridge bank to protect the depositors' money. The government bailout did not "reward" the bank and instead was shuttered by the California DFPI, so there are no moral hazard issues at all in cases like these.

In conclusion, government bailouts are necessary to prevent economic collapse, preserve jobs, and protect the interests of taxpayers. While opponents of government bailouts may argue that they reward companies for poor decision-making and risk-taking, the reality is that failing companies can fail due to factors beyond their control. Therefore, government intervention is necessary to prevent the failure of major companies and protect the overall economy but it should be used as a long-term solution because it does not address the root cause of the problem.

Each critique should be between 200 and 250words. It should be a critical analysis of your classmate's paper. Identify weaknesses in economic reasoning, if any, and question arguments that are not logical or that you believe violate economic principles discussed in our class. You can, of course, also identify aspects of the paper that you like. Describe what parts of the paper you like and why.