Question

What do you think are the pros and cons of bailing out lending institutions? Write at least 250 words.

Answer 1

The advantages and disadvantages of bailing out financial institutions are :

• The financial institutions are the backbone of our economy. So, in any case if these lending agencies suffer financially , the government funds these institutes to avert a major financial slowdown in the economy.
• The Lehman brothers financial crisis brought upon a major global financial crisis, the economy is dependent on these institutes so it is essential that the government bail out/ help them.
• The government aid to these banks are provided from the tax payer's money. Helping these banks repeatedly we give birth to the chances of a credit default by these banks in the future and it promotes inefficiency within these institutions.
• Only banks are capable of savings the liquidity crisis of the banks and protecting the economy value of the currency through the infusion of liquidity.
• Bailing out promotes an inefficient work culture in these institutes , which can create further problems in the future, So, bailing out is not a long term solution.
• The Government when carries out bailout activities, it can turn out to be quite an expensive affair for them and cost them billions of dollars.The paying off , of such a huge sum can lead to higher taxes and higher inflation in the future which will eventually hurt the consumers. Failure of the lending institutions should not be a consumer burden.
• a problem which was created due to excessive credit and leverage cannot be solved by creating more credit in the hands of the tax payer's money.
• The bail out plan can turn out to be failure and not work at all.