Corporate bailout

Introduction

Theoretically, Bailout is termed as an act of inducing liquidity into an entity, which is on the verge of being bankrupted, insolvent or totally being liquidated. An entity could be a company, a country or an individual. It is extended to entities to meet its short-term obligations or responsibilities. Normally bailouts are extended by government or by consortia, which is a combination of many financial institutions. In consortia, they want a control over the entity. Bailout is given to for the monetary benefit of an entity (www.investorwords.com). More often, a bailout is extended when the entities are undergoing a short-term financial crisis or there is a danger of an entity is in the state of being illiquid (www.reference.com). Bailouts are also undertaken to avoid higher intensity of socioeconomic failures. For example, the government of USA terms transportation sector to be one of the greatest contributor to USA's general productive power, which in return contributes to nation's geopolitical power (Chomsky, Noam 2006).

It is the policy of the government of USA, to give financial protection to the companies that come under transportation sector. For example, Companies such as airlines and petrol companies. Such companies have protection from low-interest rate or subsidy failures. Such entities are given importance due to the fact that they are a major support welfare. It also gives security to the economy of the country (Surowiecki, James, 2008).

History of the US Government Bailouts

The United States of America has had a long history of engaging in the process of saving businesses that are termed as “to big to fail” and has tried its level best to continue to remain insolvent. Since the year of 1970, the government of USA has assisted to some major companies and firms to avoid the wave of failures in the economy. It is indeed an unreasonable practice, but it has proven to be more advantageous and successful.

A brief overview of US Government bailouts in the last 4 decades

In the year 2008, United States of America indulged itself deeply into the corporate world and aided several corporations in bailing out. Part of government also felt that such instances are re-occurring, and considerable initiative is to be taken to ensure that USA does no undergo Great Depression again. There were firms that were supported by the government but could inflict major harm to USA as well as the global economy.

The Railroad bailout

Back in the 1970's, Penn Central Railroad declared bankruptcy and communicated it to the government regarding their need of money. Within the same year, the government of USA strategized a plan of aiding the Penn Central railroad by extending a loan of $676 million. The entire transaction resulted to be successful.

The Lockheed Bailout

In the year 1971, the first beneficiary of funds from the government was the Lockheed. It got it through the act of Emergency Loan Guarantee. The total sum of money that the government extended was $1.4 billion. This act of the government benefitted thousands of employees from being unemployed. It also stabilized the financial ...