question: Why large corporations get government bailouts, while small companies go under?
comment: I don't think we should ever bailout any companies but typically it's to save jobs and help the economy. A factory that hires thousands of workers in your state is more important economically for the region than one that hires a 100.
passages: For example, the US government assumes transportation to be critical to the country's general economic prosperity. As such, it has sometimes been the policy of the US government to protect major US companies responsible for transportation (aircraft manufacturers, train companies automobile companies, etc.) from failure by subsidies and low-interest loans. Such companies, among others, are deemed "too big to fail" because their goods and services are considered by the government to be constant universal necessities in maintaining the nation's welfare and often, indirectly, its security.
   BULLET::::- A centralized bureaucracy is promoted by allowing government powers to choose winners and losers in the economy. Paul Volcker, chairman of Barack Obama's White House Economic Recovery Advisory Board, said that bailouts create moral hazard. They signal to the firms that they can take reckless risks, and if the risks are realized, taxpayers will pay the losses: "The danger is the spread of moral hazard could make the next crisis much bigger."
   Some critics have argued that "The way things are now banks reap profits if their trades pan out, but taxpayers can be stuck picking up the tab if their big bets sink the company." Additionally, as discussed by Senator Bernie Sanders, if taxpayers are contributing to rescue these companies from bankruptcy, they "should be rewarded for assuming the risk by sharing in the gains that result from this government bailout".
   Emergency-type government bailouts can be controversial. Debates raged in 2008 over if and how to bail out the failing auto industry in the United States. Those against it, like pro-free market radio personality Hugh Hewitt, saw the bailout as unacceptable. He argued that the companies should be dismantled organically by the free-market forces so that entrepreneurs may arise from the ashes; that the bailout signals lower business standards for giant companies by incentivizing risk, creating moral hazard through the assurance of safety nets that ought not be but unfortunately are considered in business equations; and that a bailout promotes centralized bureaucracy by allowing government powers to choose the terms of the bailout. Furthermore, government bailouts are criticized as corporate welfare, which encourages corporate irresponsibility.
   BULLET::::- In a survey conducted September 19–22 by Bloomberg/Los Angeles Times, by a margin of 55 percent to 31 percent, Americans opposed the bailout when asked whether "the government should use taxpayers' dollars to rescue ailing private financial firms whose collapse could have adverse effects on the economy and market, or is it not the government's responsibility to bail out private companies with taxpayers' dollars?".
   BULLET::::- Who is Too Big to Fail?: Does Title II of the Dodd–Frank Act Enshrine Taxpayer Funded Bailouts?: Hearing before the Subcommittee on Oversight and Investigations of the Committee on Financial Services, U.S. House of Representatives, One Hundred Thirteenth Congress, First Session, May 15, 2013
  
  BULLET::::- Who Is Too Big To Fail: Are Large Financial Institutions Immune from Federal Prosecution?: Hearing before the Subcommittee on Oversight and Investigations of the Committee on Financial Services, U.S. House Of Representatives, One Hundred Thirteenth Congress, First Session, May 22, 2013
  
  BULLET::::- Federal Reserve - List of Banks with Assets Greater than $10 billion
   Another study by Frederic Schweikhard and Zoe Tsesmelidakis, estimated the amount saved by America's biggest banks from having a perceived safety net of a government bailout was $120 billion from 2007 to 2010. For America's biggest banks the estimated savings was $53 billion for Citigroup, $32 billion for Bank of America, $10 billion for JPMorgan, $8 billion for Wells Fargo, and $4 billion for AIG. The study noted that passage of the Dodd–Frank Act—which promised an end to bailouts—did nothing to raise the price of credit (i.e., lower the implicit subsidy) for the "too-big-too-fail" institutions.
   On November 24, 2008, Republican Congressman Ron Paul (R-TX) wrote, "In bailing out failing companies, they are confiscating money from productive members of the economy and giving it to failing ones. By sustaining companies with obsolete or unsustainable business models, the government prevents their resources from being liquidated and made available to other companies that can put them to better, more productive use. An essential element of a healthy free market, is that both success and failure must be permitted to happen when they are earned. But instead with a bailout, the rewards are reversed – the proceeds from successful entities are given to failing ones. How this is supposed to be good for our economy is beyond me. ... It won’t work. It can’t work ... It is obvious to most Americans that we need to reject corporate cronyism, and allow the natural regulations and incentives of the free market to pick the winners and losers in our economy, not the whims of bureaucrats and politicians."
   On November 24, 2008, American Republican Representative Ron Paul (R–TX) wrote, "In bailing out failing companies, they are confiscating money from productive members of the economy and giving it to failing ones. By sustaining companies with obsolete or unsustainable business models, the government prevents their resources from being liquidated and made available to other companies that can put them to better, more productive use. An essential element of a healthy free market is that both success and failure must be permitted to happen when they are earned. But instead with a bailout, the rewards are reversed – the proceeds from successful entities are given to failing ones. How this is supposed to be good for our economy is beyond me... It won't work. It can't work... It is obvious to most Americans that we need to reject corporate cronyism, and allow the natural regulations and incentives of the free market to pick the winners and losers in our economy, not the whims of bureaucrats and politicians."
   On November 24, 2008, Congressman Ron Paul (R-TX) wrote, "In bailing out failing companies, they are confiscating money from productive members of the economy and giving it to failing ones. By sustaining companies with obsolete or unsustainable business models, the government prevents their resources from being liquidated and made available to other companies that can put them to better, more productive use. An essential element of a healthy free market, is that both success and failure must be permitted to happen when they are earned. But instead with a bailout, the rewards are reversed – the proceeds from successful entities are given to failing ones. How this is supposed to be good for our economy is beyond me ... It won't work. It can't work ... It is obvious to most Americans that we need to reject corporate cronyism, and allow the natural regulations and incentives of the free market to pick the winners and losers in our economy, not the whims of bureaucrats and politicians."
   The FDIC has drawn attention to the problem of post-resolution governance and suggested that a new CEO and Board of Directors should be installed under FDIC receivership guidance.
  
  Claims are paid in the following order, and any deficit to the government must be recouped by assessments on the financial industry:
  
  BULLET::::1. Administrative costs
  
  BULLET::::2. The government
  
  BULLET::::3. Wages, salaries, or commissions of employees
  
  BULLET::::4. Contributions to employee benefit plans
  
  BULLET::::5. Any other general or senior liability of the company
  
  BULLET::::6. Any junior obligation
  
  BULLET::::7. Salaries of executives and directors of the company
   In this sense, Alan Greenspan affirms that, "Failure is an integral part, a necessary part of a market system." Thereby, although the financial institutions that were bailed out were indeed important to the financial system, the fact that they took risk beyond what they would otherwise, should be enough for the Government to let them face the consequences of their actions. It would have been a lesson to motivate institutions to proceed differently next time.
  
  Section::::Analysis.:Inability to prosecute.
   Government subsidy comprises a lion's share of the profits of the largest banks in the United States. Banks understood to be "too big to fail]" take greater risks because they understand that if the risks go seriously wrong the institution is likely to be bailed out by the government. Also for this reason, such large banks borrow at lower interest rates because of the lower perceived risk of institutional failure. The value of the government subsidy to these larger U.S. banks in 2012 was estimated to be up to $70 billion.
  
  Section::::Political power.
   Others, such as economist Jeffrey Sachs, have characterized the particular bailout as a necessary evil and have argued in 2008 that the probable incompetence in management of the car companies is an insufficient reason to let them fail completely and to risk disturbing the delicate economic state of the United States, as up to three million jobs rested on the solvency of the Big Three and things were bleak enough as they were.
   Economist Joseph Stiglitz testified that bank bailouts "... are really bailouts not of the enterprises but of the shareholders and especially bondholders. There is no reason that American taxpayers should be doing this." He wrote that reducing bank debt levels by converting debt into equity will increase confidence in the financial system. He believes that addressing bank solvency in this way would help address credit market liquidity issues.
   On February 4, 2009, it was reported that during 2008, the companies that received bailout money had spent $114 million on lobbying and campaign contributions. These companies received $295 billion in bailout money. Sheila Krumholz, executive director of The Center for Responsive Politics, said of this information, "Even in the best economic times, you won't find an investment with a greater payoff than what these companies have been getting."
  
  Section::::Claims that oversight has not been effective.:Bank of America throws $10 million Super Bowl party.
   Corporations have significant influence on the regulations and regulators that monitor them. For example, Senator Elizabeth Warren explained in December 2014 how an omnibus spending bill required to fund the government was modified late in the process to weaken banking regulations. The modification made it easier to allow taxpayer-funded bailouts of banking "swaps entities", which the Dodd-Frank banking regulations prohibited. She singled out Citigroup, one of the largest banks, which had a role in modifying the legislation. She also explained how both Wall Street bankers and members of the government that formerly had worked on Wall Street stopped bi-partisan legislation that would have broken up the largest banks. She repeated President Theodore Roosevelt's warnings regarding powerful corporate entities that threatened the "very foundations of Democracy."
   Economist Randall S. Kroszner summarized several approaches to evaluating the funding cost differential between large and small banks. The paper discusses methodology and does not specifically answer the question of whether larger institutions have an advantage.
  
  During November 2013, the Moody's credit rating agency reported that it would no longer assume the eight largest U.S. banks would receive government support in the event they faced bankruptcy. However, the GAO reported that politicians and regulators would still face significant pressure to bail out large banks and their creditors in the event of a financial crisis.
  
  Section::::Analysis.:Moral hazard.
   Dr. John Hussman has argued for significant bondholder haircuts: "Stabilize insolvent financial institutions through receivership if the bondholders of the institution are unwilling to swap debt for equity. In virtually all cases, the liabilities of these companies to their own bondholders are capable of fully absorbing all losses without the need for public funds to defend those bondholders ... The sum total of the policy responses to this crisis has been to defend the bondholders of distressed financial institutions at public expense."
   As of 2012, the industry has recovered to some extent. GM had 2011 sales of more than 9 million vehicles, more than Toyota. According to a May 2011 report by the White House National Economic Council, however, the US government may have to write off about $14 billion of its $80 billion loan.
  
  By 2012, polls from Pew Research Center and Quinnipiac University Polling Institute show that the American public now believes that the bailouts have been helpful for the American economy.
  
  Section::::Background.
   Section::::Historical examples.:Continental Illinois case.:Regulatory crisis.
   The prospect of a federal bailout of failing US automakers appeared dim pending the inauguration of Barack Obama. There appeared to be opposition from both the Republican members of the Senate and the office of the incumbent president, George W. Bush, which expressed doubt that the companies could be salvaged.
   The issue of federal bailouts of the banks and big corporations became a major issue of the 2010 elections, with the Tea Party movement in particular focusing its attack on bailouts.
  
  Section::::See also.
  
  Specific:
  
  BULLET::::- Automotive industry crisis of 2008–2009
  
  BULLET::::- Brown Bailout
  
  BULLET::::- Crédit Lyonnais
  
  BULLET::::- Debtor-in-possession financing
  
  BULLET::::- Emergency Economic Stabilization Act of 2008
  
  BULLET::::- Financial crisis of 2007–2012
  
  BULLET::::- Late 2000s recession
  
  BULLET::::- Subprime mortgage crisis
  
  BULLET::::- Lemon socialism
  
  General:
  
  BULLET::::- Bankruptcy
  
  BULLET::::- Bubble (economics)
  
  BULLET::::- Cash flow
  
  BULLET::::- Lender of last resort
  
  BULLET::::- Financial crisis
  
  BULLET::::- Nationalization
  
  BULLET::::- Recapitalization
  
  BULLET::::- Stock market crash
  
  Section::::Further reading.
   On March 6, 2013, United States Attorney General Eric Holder testified to the Senate Judiciary Committee that the size of large financial institutions has made it difficult for the Justice Department to bring criminal charges when they are suspected of crimes, because such charges can threaten the existence of a bank and therefore their interconnectedness may endanger the national or global economy. "Some of these institutions have become too large," Holder told the Committee, "It has an inhibiting impact on our ability to bring resolutions that I think would be more appropriate," contradicting earlier written testimony from a deputy assistant attorney general who defended the Justice Department's "vigorous enforcement against wrongdoing". Holder has financial ties to at least one law firm benefiting from "de facto" immunity to prosecution, and prosecution rates against crimes by large financial institutions are at 20-year lows.
   Opponents of a bailout believe that the automakers' problems could be more efficiently resolved by a bankruptcy court with legal power to dissolve existing contracts, shedding costs, and debts that it can no longer afford. They suggested that a government "car czar" would be ineffective since their actions could be swayed by Washington politics.
  
  Former Massachusetts governor Mitt Romney, running in the Republican Party presidential primaries, 2012, confirmed that he had favored bankruptcy rather than government aid to the industry, though he had favored the Troubled Asset Relief Program (TARP) as a whole.
  
  Section::::Bankruptcy and alternatives.:Arguments against Chapter 11 bankruptcy.
  