This paper argues that the U.S. government's bailing out of the banking sector will not work in the era of globalization.
# 147135 | 750 words | 6 sources | MLA | 2010 |
Published by Shaad on Feb 27, 2011 in Accounting (Financial) , Economics (Public Finance) , Political Science (Fiscal Policy (economy)) , Economics (Globalization)
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This essay argues that the recent decision of the U.S. government to bailout the banking sector is a mistake. The argument is based on the observation that globalization is the overriding reality of the present day. It first of all presents the argument that the bailout is morally unacceptable given the ethos of the free market. It also presents the argument of spreading of "moral hazard" which weakens the capitalist system. The essay then contends that free markets are essentially "mixed economies", and therefore the integrity of the free market is not under such a threat as the above arguments suggest. Instead, it argues that corporate multi-nationalism siphons money and jobs away to low wage countries, and in this way the bailouts to not help the US economy. It contrasts this situation to the past where bailouts and government spending worked, and cites the reasons as war and the relative non-dependence of nation states.
From the Paper:"The recent decision of the government to provide aid to the financially troubled banking sector is a worrying development. The sums in question are astronomical, and need to be to have any effect, considering the depth of the crisis. But the solution is backward looking, and does not take into consideration the reality of globalization, in which state governments have little power to effect change.
"A financially troubled firm is said to be bailed out when it receives loans from the Central Bank in order to keep it solvent. Bailouts are controversial because they are said to spread ``moral hazard'', i.e. they encourage financial irresponsibility. This is especially so in the case of large banks and other financial institutions, since this is the sector that is most liable to receive government aid. It is also said to run counter to the ethos of capitalism and the free market which requires that efficiency be rewarded, and where inefficient business practices become obsolete through market failure. Government intervention into the market implies that centralized social bureaucracy comes to replace the mechanism of the market."
Sample of Sources Used:
- Deardorff, Alan V. Social dimensions of U.S. trade policies. University of Michigan Press, 2000.
- Evanoff, Douglas Darrell; David S. Hoelscher & George G. Kaufman. Globalization and systemic risk. World Scientific, 2009.
- May, Elaine Tyler. Homeward bound: American families in the Cold War era. Basic Books, 2008.
- Roubini, Nouriel & Brad Setser. Bailouts or bail-ins?: responding to financial crises in emerging economies. Peterson Institute, 2004.
- Vernon, Raymond. Storm over the multinationals: the real issues. Harvard University Press, 1977.
Cite this Analytical Essay:
The Bailout of the Banks (2011, February 27) Retrieved February 24, 2020, from https://www.academon.com/analytical-essay/the-bailout-of-the-banks-147135/
"The Bailout of the Banks" 27 February 2011. Web. 24 February. 2020. <https://www.academon.com/analytical-essay/the-bailout-of-the-banks-147135/>