Bail out (bailout)

Bailout refers to the act of providing financial assistance to an individual or business in order to prevent it from becoming bankrupt, shutting down, or becoming insolvent. This term also applies to assistance given to countries in need of financial aid. Bailouts function not only to protect businesses or countries, but the economy, as well. In certain cases, the purpose of the bailout may be to let the company fold anyway, but preventing any major impact on other businesses or entities that may be affected. Some entities may also attempt to bailout failing companies for their own benefit. Since struggling companies are likely to have very low stock prices, larger companies or wealthy investors may take advantage of this.

Countries may also choose to provide bailouts to certain companies, depending on the weight these have on certain vital industries, such as agriculture, transportation and fuel. Granting subsidies is one way of doing this and companies may also be given loans at very low interest rates. These bailouts aim to sustain the national economy by ensuring that all major industries function properly, as well as secure the economy against a ripple effect, which may cause much greater economic damage to the country.

The practice of providing subsidies can be a subject of contention among free-market advocates, who are against the state’s intervention in the economy. Critics of bailouts believe that providing financial assistance to floundering companies encourages companies to be lax and irresponsible. They also fear that the government may take too much control over the workings of the market.

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