Money To A Failing Business example essay topic

Failing Business Failing 1 Should the Government bail out Failing Businesses? November 23, 2002 Failing Business Failing 2 In the United States evolving technology, businesses and markets have complicated the debate on the extent of government's involvement in business. The questions range from how much government should be involved in the oversight of current businesses to what should the government do if a business is failing. The debate volleys back and forth: Should government's bailout failing businesses? The choice of whether government should bailout failing business raises several questions. Who should they bailout, when should they bail them out, what are the benefits from the bailout, what are the effects on the economy?

Government has in the past bailed out businesses in time of need. Cities such as New York and nations including Mexico have been brought back from financial brink by government aid. In the 1970's Lockheed Martin Corporation (Aeronautics Company) was rebuilt with federal assistance. In the 1980's the government guaranteed repayment of $1.5 billion in commercial loans to bailout Chrysler Corporation and bailed out the savings and loan during their crisis (2002, Houston Chronicle). By aiding these companies our aeronautics systems are still in place, people have the choice of buying a Chrysler, and depositors did not lose money.

Although, there are those who normally feel government should not bailout failing businesses, some of them changed their minds after the tragedy on September 11, 2001. After the previously mentioned tragedy, commercial airlines needed a rescue of some fashion in order to continue their business. Washington prefers the term "recovery", instead of bailout or handout, but the fact remains they are giving money to a failing business. Just like the defenders of the savings and loan bailout, which ensured Failing Business Failing 3 depositors did not lose money; supporters of the commercial airline rescue argue that allowing the huge carriers to fail would harm the economy. Massive layoffs and a drop in tax revenue are some of the harmful affects to an economy which is already in recession.

Would this occur anyway? If there was not a bailout for the commercial airlines then there would have been bankruptcies and the assets would still be in place. These assets include planes, gates, terminals, etc... By letting the free market work someone else would purchase these assets and business would continue according to demand.

On the other hand the government has inhibited large mergers between airlines to maintain fair competition. These mergers may occur now if the government does not get involved. In this case, there are those who feel government should not bailout the commercial airlines because they do not like public dollars being spent on private business and to maintain a free-market. The essence of dynamic markets show, stronger industries will emerge, after the dust of the tragedy settles (2001, Wallstreet Journal).

There are those who believe they should bailout the airlines to assist the economy. There are those who feel in most situations the government should not be involved but in this "extraordinary" situation government should be involved. This is an about face by protectors of the free-market. In the event of disasters should the government assist failing businesses? The question remains unanswered. In 1998 the Asian Financial flu occurred in Asian countries, such as, Thailand and South Korea.

The financial dilemma occurred because of bad investments and loans. The United States banks, such as, J.P. Morgan, Chase Manhattan, Bank America, Failing Business Failing 4 Bankers Trust and Bank of New York were on the hook for large sums of monies they were waiting for repayment on. For example, Citicorp would stand to lose $60 billion dollars if Korea defaulted on their loans (1998, PS report). In the early 1990's, United States investors put billions of dollars into Asia in the form of direct investments, bank loans, bonds, and investments in local stock markets. The U.S. investors were putting faith in payoffs without looking at the risks. The U.S. investors now want the government to bailout the Asian countries in order to save themselves.

The government used funds out of the International Monetary Fund (IMF) to assist Asia. The IMF is an international organization of 184 countries, established in 1945 to promote international monetary cooperation and to foster economic growth and high levels of employment; and to provide temporary financial assistance to countries to help ease balance of payment adjustments (IMF. org). This assists the countries to stabilize their currency and continue paying for imports without having to impose trade restrictions or capital controls. The IMF is funded by its member countries based on economic size (IMF. org). The IMF's lending capacity is smaller than the sum of its resources because it can only use the currencies of financially strong economies to finance new lending. Robert Bissio, managing editor of the annual "Social Watch" report, said it is "outrageous that IMF money was being used to bail out big banks and corporations" in Asia (1998, IPS World News).

Bissio also pointed out that no one was bailing out small businesses and farmers. The argument was not that the money was being used to bail out Asian countries but that the money was not being used fairly. It was felt that all of the Failing Business Failing 5 work towards socialization of Asian countries would go backwards if the assistance did not continue and continue in a fair manner. On the other hand if bailouts solved anything, the IMF bailout of Asian countries would have stopped the Asian flu months ago, according to Phyllis Schlafly (1998, PS Report). Schlafly states the "IMF rescue attempts have even become part of the problem because they reward stupidity, socialism, and cronyism".

Other loans to countries, such as, Mexico were repaid. Mexico put up collateral for their loans where as the Asian countries were not putting up any collateral. Schlafly's argument is, "We " re for the free market. Events have now proved that "free trade" is a racket that forces the taxpayers to protect the big boys from the risks of the free market".

So should government be involved in bailing out failing businesses? The question is not answered. The government is involved already with bailing out failing businesses. So maybe the more important questions to be answered are those we mentioned previously. Who should the government bail out, when should they bail them out, what are the benefits, and what is the effect on the economy? Who should make these decisions or who should be involved in making these decisions.

Regulations and government involvement can only increase economic efficiency only when the benefits they provide exceed their social costs (2000, Collinge & Ayers). Failing Business Failing 6

Bibliography

1. Collinge, R.A. & Ayers, R.M. 2000.
Economics by Design; Principles and Issues. 2nd Edition. Prentice Hall. New Jersey. 2. Deen, T. 1998.
Development: Asia's Cash Crisis, a Setback for Poverty Reduction. United Nations, Feb. 19 (IPS). web 3. Mason, J. 2001.
Help termed "recovery,' not bailout. Houston Chronicle Washington Bureau. web 4. McCauley, K. (ed. ). 2001.
Bailout May Delay Chapter 11 Filings. O'Dwyer's PR Daily. web 5. Schlafly, P. 1998.