Are Financial Bailouts a Good Thing?


Back in 2008 large corporations – and specifically banks – took a hit with consumer sentiment.

Being more direct, people hated banks.

They blamed them for most of the situation we found ourselves in.

There is no doubt the banks were unscrupulous, but there was another larger factor at play.

These banks knew that if they ever needed a bailout, that the government would gladly do so.

Why? Because the economy seemingly needs those banks to be strong.

When you provide a guarantee that you will help a corporation if they act poorly, you are encouraging that kind of behavior.

Executives had an incentive to take excessive risk because if they were right, they would make a lot of money.

If they we are wrong? Oh well, Uncle Sam will bail us out.

This lack of accountability is dangerous and causes the bubbles we are seeing.
 
How Does This Apply to Households?

While we saw a stimulus type bailout in 2008, it is significantly less than what we are seeing today.

In 2008, the checks were sent in hopes of helping consumers spend money and keep the economy going.

What we are seeing this time around is a full-on bailout in hopes of keeping the economy from crashing.

And while something is needed to keep this from happening, it is setting a dangerous precedence – arguably one that was set 100+ years ago.

Just as we have seen in past bailouts to corporations, nothing has changed.

It only took 2-3 weeks of slowing business for corporations to be in turmoil.

So why did they not learn form 2008 and save more money?

Because the government set the precedence that they would bail them out if needed.

This same message is being sent to households today.

While business and individuals are quite different, the concept is the same.

We are seeing that debt is crushing individuals and businesses, and that neither have adequate savings.

What We Need to Do?

If businesses and households both had 6 months of savings, this would be a virus issue.

But because our financial house is not in order, it is also a financial crisis.

Image how much less stress we would be feeling right now if we didn’t have the money worries.

The stock market would be less volatile.

Households wouldn’t be in a full-on panic.

It is the lack of preparedness that is driving most of the concern right now.

If savings were in place, we would be more equipped to handle a quarantine – both as businesses and individuals.

My hope is that we learn from this experience.

We can either assume we will get bailed out and go about life as before, or we can make a change.

We really need to view the discomfort we are feeling as a call to action.

Now is a great time to learn from what got us here.

If nothing else, we would all be much better off by getting rid of our debt, and getting our savings in place.

These two factors alone would alleviate much of the chaos we are seeing.

Having this worry eliminated would allow us to focus on the real issue at hand - which is a virus.

Every tragedy and struggle we have is merely an opportunity to become strong and better - if we focus on improving ourselves that is.

If you haven’t read 
my guide for preparing for a recession, you may find interest in it.  
 

Thank you for reading,
Darron Rowley

Founder of 1911 Apparel

 

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