Bail out in economics and finance is a term used to describe a situation where a bankrupt or nearly bankrupt entity, such as a corporation or a bank, is given a fresh injection of
liquidity, in order to meet its short term obligations. Often bail outs are by
governments, or by consortia of investors who demand control over the entity as the price for injecting funds.
Often a bail out is in response to a short term cash flow crunch, where an entity with illiquid, but sufficient, assets is
given funds to "tide it over" until short term problems are resolved. However, often bail outs are merely delaying the
inevitable, as a government or investment structure attempts to avoid putting a large quantity of illiquid assets on the market,
which would force other similar entities to write down their assets.
The bailing out of a corporation by government is controversial because bankruptcy can be seen as being caused by the failure
to satisfy consumer demand; the bailing out is thus an instance of government intervention on the market overruling the will of
consumers. "All this talk: the state should do this or that, ultimately means: the police should force consumers to behave
otherwise than they would behave spontaneously."[1]
According to the Austrian School of Economics the appearance of monopolies can often be
blamed on such acts of government intervention that preserve overstretched and badly managed corporations which market forces
would have broken into smaller and more specialized companies.
Controversial cases
See also
References
- ^ Mises, Socialism: An Economic and Sociological Analysis
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