Bailouts: An Essay on Conflicts of Interest and Ethics When Government Pays the Tab

Abstract:     
This essay, a precursor for a book project on the same topic, addresses ethics problems for government officials who orchestrate bailouts of private companies. These problems include excessive politicization of bailout decisions, the influence of campaign contributions, conflicts of interest when executives from the private sector move in and out of government positions, insider trading on government information about bailouts, and loose regulation of conflicts of interest within private companies that assist with bailouts as government contractors. This essay concludes that government ethics law in its current state is not up to the task and that the United States is not prepared to implement bailouts in a manner that will instill public confidence. Although these problems could be alleviated through stricter ethics rules or a more systematized approach to bailouts, most solutions would be more costly than the problems they attempt to solve. Bailouts thus impose a substantial burden on government ethics that may be impossible to remove, in addition to the economic cost bailouts impose on taxpayers. Designing a bailout free economy may be the only acceptable alternative. The author represented the Bush White House in drafting ethics agreements for Treasury Secretary Paulson and other Presidential nominees who were later responsible for implementing the massive bailout of the financial services industry in 2008.

Number of Pages in PDF File: 36

Keywords: government, ethics, bailouts

working papers series