My former GMU colleague (now at the University of Mississippi, and a Senior Fellow at The Independent Institute) Bill Shughart wrote this important warning about government-funded and directed bailouts. Here’s an excerpt:
The record of government bailouts of private financial institutions
in the 1930s, of Continental Illinois Bank in 1984 (which cost $8
billion) and of the entire U.S. savings & loan industry in the late
1980s and early 1990s (which cost $125 billion) teaches that emergency
loans keep weak institutions alive just long enough for their problems
to increase. Bailouts encourage more risk-taking and eliminate the
freedom to fail that is just as essential to a free-market economy as
the freedom to succeed.
The end result is likely to be further government intrusion into the private economy.