Measuring the True Cost of Government Bailout

Abstract

Government intervention to assist individual businesses and industries during the 2008-2009 economic crisis was extraordinary in variety and scope. Despite official protestations of-no more bailout‖ in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, future government interventions are inevitable, should economic circumstances become sufficiently dire. Moreover, even if Congress eliminates overt bailout-type interventions, indirect forms of public bailout are likely to continue. Understandably, taxpayers have been concerned about the cost. A simple tally of dollars authorized or disbursed is wholly inadequate to accurately assess the costs of various interventions. This Article addresses the challenges of providing reasonable budgetary information with respect to different types of bailout expenditures. In addition to looking at costs for the more obvious bailout programs, the analysis explores the special cost estimation challenges for other more covert actions, such as special tax breaks or relief from burdensome regulation, that serve a "bailout" function. The Article also takes issue with the fragmentation of intervention efforts among different-on-budget‖ and-off-budget‖ entities and with some of the methodologies used by the government to value assets obtained in its bailout efforts, arguing that decision making about the appropriate allocation of aggregate resources is hampered when some expenditures are-off-budget‖ altogether and when even-on-budget‖ agencies use different accounting methods. Finally, the Article calls for transparency and budget accounting for public bailouts accomplished more indirectly through the tax system and other regulatory regimes. Adequate and transparent budget accounting for bailout costs requires greater consistency in valuation and accounting methods, and a more unified presentation of aggregate information in the budget with respect to all government bailout-type activities.

Toward a theory of business

“…As the financial crisis worsened, the US government stood behind many more troubled firms and offered billions of dollars to prevent a total economic collapse. Accounting for all of the money is a difficult task but we know, for example, that JPMorgan received $29B from the U.S. government to buy the troubled Bear Stearns, AIG received at least $85B to stay solvent, and all manner of others (including General Motors) received portions of the $700B that funded the Troubled Asset Relief Program (Block, 2010). 2 As we point to the fruits of business, we acknowledge debates over which economic system -socialism, capitalism, or some yet-to-be imagined third system -is best equipped to support business activity.…”

Risk management factors contributing to transgressions in the procurement practices in South African SOEs

“…Guarantees made by the government to struggling SOEs divert funds that could have been used to bolster economic growth and place additional strain on an already burdened tax base (Nkosi, 2020). This poses serious threat to fiscal balance and policy priorities (Block, 2010).…”

COVID-19 and bailout policy: The case of Virgin Australia

“…It is generally believed that unless there is market failure, the government should be refrained from adopting any public policy towards bailouts ( Block, 1992 ). However, the notion of “too-big-to-fail” has led to taxpayer money being used to rescue some large financial firms that were considered to pose a huge risk to the entire economy upon failure ( Block, 2010 ). The taxpayer money was also used to rescue non-financial firms, such as the financial aid provided to the airline industry to stabilise and sustain air transport post “9/11”.…”