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Recent Finance institution and bank bailout plan

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The S&L bailout was, in essence, the replacing of the governments implicit guarantee of deposits with the explicit funding of those deposits. The implicit guarantee has no costs, since it requires no action. Once action is taken, however, real dollars are being spent. This will have consequences in terms of taxes, interest rates and the rate at which government can borrow. Because the bailout represents a loss of wealth, it must be balanced with a decline in consumption either at present or in the future (Manchester & McKibbin, 1994)

Taking from this example, we can better analyze the current bailout. The government has made a rational economic decision with respect to these bailouts. The cost of the bailout, even into the hundreds of billions, is less than the cost to the economy if one of these banks failed. In the case of AIG, the biggest bailout recipient, the cost would have been worldwide economic devastation. Even if the supposition of some scholars was true, that FDICIA had improved regulation of the banking industry to the point where the too-big-to-fail problem no longer existed, we can see that this was not the case with the insurance industry. Indeed, the increasingly