What does “bailout” mean? In today’s economic climate, the term bailout carries a heavy perception. This is the idea that a business or government is in financial distress and seeking a large, often public sum of money to rescue them from it. In reality, what a bailout really is, is the use of public monies or private investment to prevent the failure of a business or government.
Types of Bailouts
There are two types of bailouts: loan bailouts and equity bailouts. A loan bailout is essentially a loan to a business or government. The loan is designed to help the entity in question with its specific financial problem and is therefore seen as a form of aid. Equity bailouts involve the infusion of equity capital, and as such, the entity receiving the bailout is in effect receiving capital investment. This can be done in the form of the government selling public assets, or through private investors investing in the entity.
Examples of Bailouts
One of the more infamous examples of a bailout occurred during the 2008 financial crisis, when the U.S. government provided $700 billion to bail out a variety of large financial institutions. This was done to stabilize the U.S. economy after the subprime mortgage crisis, and was seen as a form of government intervention to prevent a full-scale system collapse.
More recently, the U.S. government has provided loans to U.S. airlines to help address the financial problems created by the coronavirus pandemic. This has been seen as a form of loan bailout, with the goal of keeping airlines afloat during the hardest of times.
Conclusion
In conclusion, a bailout is a form of aid to a business or government in distress. This can come in the form of loans or equity capital, and is typically done to prevent a complete system collapse. Bailouts can occur at any level, from small businesses to large corporations, and from local governments to entire nations. Knowing what “bailout” means is important in today’s economic climate, and understanding the various types and examples can help one better understand this concept.