What is government help?

Government rescue occurs when the government authority directly or indirectly contributes funds to the company or industry to prevent its failure. Government rescue has a long and often problem history around the world, but can provide major relief for short -term economic crises. Understanding the risks and possible rewards by government rescue is important for determining whether they are the right strategic reaction to the economic crisis.

The government's assistance fulfills an organization with a money supply. This can be done either by direct transfer of funds known as "direct financing" or "indirect financing", which means buying bad assets from business at high prices. In both cases, the required result is to provide business liquid assets that can be used to continue operation during the economic crisis or reorganization.

rule can be considered necessary if diTyThe company represents an important investment or support of the national economy. For example, during the banking crisis starting in the United States in 2007, supporters of rescue plans emphasized the risk for millions of US investors, and account holders should allow large banking institutions to fail. In Japan over 90 years, it has become government policy to maintain banking and other large industries above the water through repeated assistance in order to reduce unemployment and economic decline. An organization that has significant value for the national economy may be a probable rescue candidate, as the consequences of the insolvency of the company can pose a greater economic threat.

Another reason why government helps can be considered is that the industry in question provides a service available anywhere else. In the mid -20th century, the US government saved railway companies as a result of massively falling due to popularity of flying for long distance transport. To make a waveDa kept the railway in the run, felt that it was necessary to enter with emergency financing, which many American railway services still relied on in the 21st century.

Although government rescue assistance can help the necessary society through a short -term crisis, they mean many risks. First, they may disrupt the natural order of the market economy, which dictates that poorly implementing companies must be allowed to fail. Secondly, they can artificially inflate the value of a company that may incorrectly increase stock prices. Thirdly, they can create an ethically dangerous situation where executives and managers in large companies can continue their bad business because they are aware that the government will save them. For the fourth time, it can create an open situation without a stop date, which means that rescue money using taxpayers can continue to support badly, but a large corpores in eternity.