In Favor of a 'Bail-In': How a Trillion Dollars Might Be Better Used to Start a Recovery
St. John's Journal of Civil Rights and Economic Development, Vol. 25, Spring 2011
22 Pages Posted: 7 Jul 2011
Date Written: March 5, 2011
Between October 2008 and February 2009, as the Dow Jones Industrial Average steadily sank 40%, the federal government took unprecedented action to keep a short list of very large corporate entities out of bankruptcy. Specifically, the Treasury Department appropriated approximately $1 trillion from sources unknown to buoy the coffers of companies believed to have been victimized by a collective myopia on Wall Street. Spanning two Presidential administrations, the philosophy of this economic rescue belied partisan ties; overall, the extent of monies authorized was simply unfathomable.
The Bailouts did not restore the billions lost in the stock market swoon, or loosen the tightening of credit, or end the bank closings, or halt the rising unemployment rate, or assuage the public’s general malaise. Simply put, if we agree that immediate and massive government spending was warranted, that unfathomable amount of money should have been spent elsewhere.
Accordingly, this Article examines a hypothetical broader allocation of government largesse. Utilizing a model tied to the market’s value at year-end 2007, it is posited that the billions in rescue dollars might have helped more if dispersed to the varied companies constituting the Dow Jones. The resulting nine-months of price support would have allowed major, direct participants in the stock market (and, indirectly, millions of others) to diversify investments, thus aiding Wall Street and Main Street alike. Overall, the Article hopefully serves as a comment on federal support of a capitalist system, a phenomena that does not seem to have peaked in popularity over three years after the revelations about Wall Street’s latest internecine fad. Whether it is government’s responsibility to prop up financial service providers in any economy is a separate (and valid) question. The Author herein seeks simply to propose a more equitable distribution of the emergency caches, both in design and effect.
Keywords: bailout, stock exchange, recovery, Dow Jones Industrial average
JEL Classification: K22, H53, P11, K23, G28, G18
Suggested Citation: Suggested Citation