A Framework for Bailout Regulation

59 Pages Posted: 14 Feb 2015 Last revised: 14 Oct 2017

See all articles by Anthony J. Casey

Anthony J. Casey

University of Chicago Law School

Eric A. Posner

University of Chicago - Law School

Date Written: February 11, 2015

Abstract

During the height of the financial crisis in 2008 and 2009, the government bailed out numerous corporations, including banks, investment banks, and automobile manufacturers. While the bailouts helped end the financial crisis, they were intensely controversial at the time, and were marred by the ad hoc, politicized quality of the government intervention. We examine the bailouts from the financial crisis as well as earlier bailouts to determine what policy considerations best justify them, and how they are best designed. The major considerations in bailing out and structuring the bailout of a firm are the macroeconomic impact of failure; the moral hazard effect of the bailout; the discriminatory effect of the bailout; and procedural fairness. Future bailouts should be guided by principles that ensure that the decisionmaker properly takes into account these factors.

Keywords: Bailout, Finance, Financial Regulation

Suggested Citation

Casey, Anthony Joseph and Posner, Eric A., A Framework for Bailout Regulation (February 11, 2015). University of Chicago Coase-Sandor Institute for Law & Economics Research Paper No. 724; U of Chicago, Public Law Working Paper No. 530. Available at SSRN: https://ssrn.com/abstract=2564259 or http://dx.doi.org/10.2139/ssrn.2564259

Anthony Joseph Casey (Contact Author)

University of Chicago Law School ( email )

1111 E. 60th St.
Chicago, IL 60637
United States
773.702.9578 (Phone)

HOME PAGE: http://www.law.uchicago.edu/faculty/casey

Eric A. Posner

University of Chicago - Law School ( email )

1111 E. 60th St.
Chicago, IL 60637
United States
773-702-0425 (Phone)
773-702-0730 (Fax)

HOME PAGE: http://www.law.uchicago.edu/faculty/posner-e/

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