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Business Students, Do you believe in Bailouts?

A photo of KingJW KingJW
Since we are all planning to get into business and many of you are interested in Investment Banking, Consulting, Financial Analyzing, or Accounting.

I'm sure you all know about the whole Sub-prime Mortgage Crisis and subsequent recession, and then the US. Gov (Bush, Obama, Congress) agreed to bailout the big banks and car companies.

Question: What if say, theoretically, TD Bank, BMO, and RBC had gone down due to subprime mortgage lending, which is unlikely, but just imagine. Would you support the Canadaian government bailing them out?

I personally don't believe that we should have bailouts. Its sad that we have to allow banks to be too big to fail and we bailout them out. I don't think taxpayers should have to foot the bill. Sad part is that right now, those same banks are paying their executives with big bonuses (out of the damn taxpayer money), how fair is that?
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A photo of Windsongs4 Windsongs4
I would say that it depends on the baank and its integrity, as well as the number of employees it has and the consequences of not bailing it out. though i think that it's not fair to give big companies a back up while giving nothing to the smaller ones -i see why the need to bail them out would arise.

I would personally make the bailout conditional upon a restructuring of the banks, an analysis of the screening method for mortgage (and other loans) applicants, and I would DEFINITELY FORBIDany golden parachutes.

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A photo of caveman caveman
You two make it sound like the banks were bailed out for $hits and giggles and/or for their own personal benefit. The whole point of "too big to fail" is that they cannot be allowed to fail, as the effects would be far too detrimental to the economy. So, it's in society's best interests for them to be bailed out.

Yes, I support bailouts in general. The big banks are the only ones with the implicit backing of the government because they are the only ones that need it. It's their reward for succeeding in a capitalist economy.

I presume you've read/heard about RBC being deemed too big too fail by the G20 (for the global economy), and Moody's estimates that both RBC and TD fit the Basel Accord's criteria of too big to fail?
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A photo of Windsongs4 Windsongs4

@caveman wrote
You two make it sound like the banks were bailed out for $hits and giggles and/or for their own personal benefit. The whole point of "too big to fail" is that they cannot be allowed to fail, as the effects would be far too detrimental to the economy. So, it's in society's best interests for them to be bailed out.

Yes, I support bailouts in general. The big banks are the only ones with the implicit backing of the government because they are the only ones that need it. It's their reward for succeeding in a capitalist economy.

I presume you've read/heard about RBC being deemed too big too fail by the G20 (for the global economy), and Moody's estimates that both RBC and TD fit the Basel Accord's criteria of too big to fail?



i get your point -oversight on my part for not stating the obvious.
but anyways- (wow this is gonna sound communist) - wouldnt it be a better approach to spread out finances over multiple banks, instead of having a few big ones? the whole "all the eggs in one basket" -so when this stuff happens, not everything fails.

ps. -this stuff isn't my forte caveman (though I assume you have probably noticed)
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A photo of johneidude johneidude
It depends on a case by case basis. I support the bailouts for the American banks in the recession because those banks were huge in size, and therefore their failure would have sent too many shock waves throughout the economy. Bailing them out ensured that the damages that these banks did to the economy was minimized. That being said, the way the bailout was handled was imo poor. They should have imposed regulations and laws on the banks that they bailed out. They should have limited the salaries and the bonuses that these banks give to their employees. I am sorry, but giving millions in bonuses to your employees even though it was your fault that the economy went to the gutter is unethical. Bonuses should have been capped, and hell the banks should have been restructured into more manageable sizes where they would not be too big to fail.
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A photo of Anonymous Anonymous
Lots of people (I'm not saying anyone on this forum) don't understand

1. How bad the economy would have tanked if the bailouts were not given and the banks failed

2. That the bailout was paid back to the government by most banks already, it wasn't a free handout (well...)

The problem was that

1. The government did not regulate the money distribution or mandate that they know where the money is going. We (the US) threw money to the banks and has very little idea where it went. For all they know large amounts went straight to the administration of the banks, with such a large bailout and no tracking requirement the money could have ended up anywhere

2. There was no parameters set in how the money was to be paid back. Here is something truly beautiful: Many of the banks have paid it back by purchasing US bonds...which receive interest. They were bailed out by the taxpayers and promised to pay it back, and by buying bonds they have basically loaned taxpayer money back to the taxpayer. It's actually worse than if we gave them free money, now we're paying them more than the cost of the bailout in interest from the bonds they purchased

It's a dirty, dirty system and everyone in it knows exactly what it going on. Banks have friends in government, and vice versa (plus many people in government have stake in companies that benefit).

It's was a truly beautiful move from a business perspective, and disgusting on every other level.

As for Canada, I think we could deal with it better. Firstly, our banks were regulated (and self-regulated) enough that they did not get themselves in such a mess in the first place. If we ended up having to bail them out to protect our economy, I think the government of Canada is responsible (and not corrupt) enough to ensure that it does not end up as a tax-payer handout.
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A photo of Nick0rz Nick0rz
Yes.
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A photo of AgriGen AgriGen

@karan8624 wrote
Lots of people (I'm not saying anyone on this forum) don't understand

1. How bad the economy would have tanked if the bailouts were not given and the banks failed

2. That the bailout was paid back to the government by most banks already, it wasn't a free handout (well...)

The problem was that

1. The government did not regulate the money distribution or mandate that they know where the money is going. We (the US) threw money to the banks and has very little idea where it went. For all they know large amounts went straight to the administration of the banks, with such a large bailout and no tracking requirement the money could have ended up anywhere

2. There was no parameters set in how the money was to be paid back. Here is something truly beautiful: Many of the banks have paid it back by purchasing US bonds...which receive interest. They were bailed out by the taxpayers and promised to pay it back, and by buying bonds they have basically loaned taxpayer money back to the taxpayer. It's actually worse than if we gave them free money, now we're paying them more than the cost of the bailout in interest from the bonds they purchased

It's a dirty, dirty system and everyone in it knows exactly what it going on. Banks have friends in government, and vice versa (plus many people in government have stake in companies that benefit).

It's was a truly beautiful move from a business perspective, and disgusting on every other level.

As for Canada, I think we could deal with it better. Firstly, our banks were regulated (and self-regulated) enough that they did not get themselves in such a mess in the first place. If we ended up having to bail them out to protect our economy, I think the government of Canada is responsible (and not corrupt) enough to ensure that it does not end up as a tax-payer handout.



Not that I dont believe you.. but can you give links for this stuff so I can read up.
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A photo of iliketurtles iliketurtles
Yes, but morally I'm against them. God knows how much worse things would be right now though if they hadn't bailed out some of the banks. I guess we'll never know lol
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A photo of caveman caveman

@Windsongs4 wrote

i get your point -oversight on my part for not stating the obvious.
but anyways- (wow this is gonna sound communist) - wouldnt it be a better approach to spread out finances over multiple banks, instead of having a few big ones? the whole "all the eggs in one basket" -so when this stuff happens, not everything fails.

ps. -this stuff isn't my forte caveman (though I assume you have probably noticed)


Well, financial intermediaries serve three main roles: liquidity provision/economies of scale, mitigation of adverse selection costs, and mitigation of moral hazard. The size and expertise of the bank allows them to complete transactions, gather and analyze information, and better monitor at lower costs, with better efficiency and with more accuracy. Removing these economies of scale by mandating that banks don't reach a certain size means that the banks can't serve these three main functions as well as they can now. That's part of the pro-large banks argument.

[QUOTE=karan8624]
As for Canada, I think we could deal with it better. Firstly, our banks were regulated (and self-regulated) enough that they did not get themselves in such a mess in the first place. If we ended up having to bail them out to protect our economy, I think the government of Canada is responsible (and not corrupt) enough to ensure that it does not end up as a tax-payer handout. [/quote]
Yep, Canadian banks are a completely different animal, and, to a certain extent, so is the Canadian government.
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A photo of Anonymous Anonymous

@AgriGen wrote

@karan8624 wrote
Lots of people (I'm not saying anyone on this forum) don't understand

1. How bad the economy would have tanked if the bailouts were not given and the banks failed

2. That the bailout was paid back to the government by most banks already, it wasn't a free handout (well...)

The problem was that

1. The government did not regulate the money distribution or mandate that they know where the money is going. We (the US) threw money to the banks and has very little idea where it went. For all they know large amounts went straight to the administration of the banks, with such a large bailout and no tracking requirement the money could have ended up anywhere

2. There was no parameters set in how the money was to be paid back. Here is something truly beautiful: Many of the banks have paid it back by purchasing US bonds...which receive interest. They were bailed out by the taxpayers and promised to pay it back, and by buying bonds they have basically loaned taxpayer money back to the taxpayer. It's actually worse than if we gave them free money, now we're paying them more than the cost of the bailout in interest from the bonds they purchased

It's a dirty, dirty system and everyone in it knows exactly what it going on. Banks have friends in government, and vice versa (plus many people in government have stake in companies that benefit).

It's was a truly beautiful move from a business perspective, and disgusting on every other level.

As for Canada, I think we could deal with it better. Firstly, our banks were regulated (and self-regulated) enough that they did not get themselves in such a mess in the first place. If we ended up having to bail them out to protect our economy, I think the government of Canada is responsible (and not corrupt) enough to ensure that it does not end up as a tax-payer handout.



Not that I dont believe you.. but can you give links for this stuff so I can read up.



Some articles about not tracking bailout money:

http://www.propublica.org/article/follow-the-money-treasury-doesnt-wanna-1210

http://saleshq.monster.com/news/articles/1422-whered-the-bailout-money-go-banks-arent-saying-

Also the (biased) documentary "Capitalism: A love Story".

I'm having some trouble finding links about the bonds being used to pay back the debt, but I believe I read it in the economist
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A photo of Windsongs4 Windsongs4

@caveman wrote

@Windsongs4 wrote

i get your point -oversight on my part for not stating the obvious.
but anyways- (wow this is gonna sound communist) - wouldnt it be a better approach to spread out finances over multiple banks, instead of having a few big ones? the whole "all the eggs in one basket" -so when this stuff happens, not everything fails.

ps. -this stuff isn't my forte caveman (though I assume you have probably noticed)


Well, financial intermediaries serve three main roles: liquidity provision/economies of scale, mitigation of adverse selection costs, and mitigation of moral hazard. The size and expertise of the bank allows them to complete transactions, gather and analyze information, and better monitor at lower costs, with better efficiency and with more accuracy. Removing these economies of scale by mandating that banks don't reach a certain size means that the banks can't serve these three main functions as well as they can now. That's part of the pro-large banks argument.

[QUOTE=karan8624]
As for Canada, I think we could deal with it better. Firstly, our banks were regulated (and self-regulated) enough that they did not get themselves in such a mess in the first place. If we ended up having to bail them out to protect our economy, I think the government of Canada is responsible (and not corrupt) enough to ensure that it does not end up as a tax-payer handout.


Yep, Canadian banks are a completely different animal, and, to a certain extent, so is the Canadian government.[/quote]

true - but that just sets up the economy for failure if one of these banks were to fail. yes efficiency may be decreased by not having one hegemonic bank -but when/if it fails, then nothing prevents it from failing the economy as well, other than mandatory bank loans (like the US). New systems can be developed to help facilitate the 3 criteria you listed, but lessening the dependance of the economy on such a large bank is harder to do I think.

But this is canada- so I agree we have a much better system in place than the US.
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