Chapter 1. A Brief History of Bailouts


"The ultimate result of shielding men from the effects of folly is to fill the world with fools."

 --Herbert Spencer, English philosopher

America's relationship with bailouts has been a complex and nuanced affair. It has evolved gradually, morphing through various phases over time. The United States has had several distinct bailout eras, and each has seen an incremental shift in the attitudes toward government rescues. Philosophically, the country has moved from finding the mere idea of a government intervention to any corporation abhorrent, to begrudgingly accepting interventions as a rare but necessary evil. Since the late 1990s, bailouts have been embraced around the world as a near-normal responsibility of government to save the financial markets from themselves. Most recently, a backlash has been building against bailouts as a reward for dumb and irresponsible behavior.

Let us consider an earlier period in U.S. history—the nineteenth century to the pre–Great Depression era. The popular attitude toward both governments and corporations was very different at that time from today. Government was much smaller, and was not seen as a lender of last resort to either banks or industry. A general suspicion of corporate entities was commonplace among the populace, and there was a near-adversarial relationship between the government and the larger corporate interests.

The federal government's involvement in companies in the nineteenth century was more ...

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