Have bail-outs worked in the past?
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- DonkeyPong
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The US is pinning its hopes on a $700bn (£395bn) bail-out of the banking sector.
The plan's supporters argue that it is important to bail out banks - as opposed to other failing industries - because of the knock-on effects a bust bank can have on the economy.
Banks can also fail for irrational reasons, which non-financial companies are less likely to do. You would not have a run on a carmaker, for example, while a perfectly sound bank could fail just because its customers panic and all ask for their money on the same day.
Bail-outs are not new and there are plenty of examples of successful and unsuccessful bail-outs, both inside and outside the financial sector. Many offer parallels with the current situation.
The plan's supporters argue that it is important to bail out banks - as opposed to other failing industries - because of the knock-on effects a bust bank can have on the economy.
Banks can also fail for irrational reasons, which non-financial companies are less likely to do. You would not have a run on a carmaker, for example, while a perfectly sound bank could fail just because its customers panic and all ask for their money on the same day.
Bail-outs are not new and there are plenty of examples of successful and unsuccessful bail-outs, both inside and outside the financial sector. Many offer parallels with the current situation.
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- tags:
- Economy, Finance, Banking, $700 billion, 2 more
