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Simple English definitions for legal terms
bailout
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A quick definition of bailout:
A bailout is when the government helps a company that is in trouble with money. This helps the company stay alive and not go bankrupt. Sometimes, a crisis or emergency affects certain industries, and the government gives money to help them. The government can give money in different ways, like cash, loans, bonds, or buying stocks. But, the government also makes sure to watch the company closely and make them change things if needed. The government does this to keep the economy stable and avoid more problems. Some people don't like bailouts because they think it encourages companies to be risky or not responsible. The government is only supposed to give money if it's safe for taxpayers and not just to help a company that's failing.
A more thorough explanation:
A bailout is when the government provides financial support to a company that is in financial trouble and at risk of bankruptcy. This support enables the company to survive. The need for a bailout often arises during financial crises or national emergencies that particularly affect certain industries.
For example, after the terrorist attack on 9/11, the airline industry was hit hard and received an 18.6-billion-dollar bailout. The government can provide support in the form of cash, loans with favorable terms, bonds, and stock purchases. However, the government also sets higher regulation and oversight of the company, requiring them to restructure or cap salaries of executives for a time period.
The purpose of a bailout is to maintain regulation of the overall market and economy and to avoid further collapse of the financial system. However, some people are uncomfortable with bailouts because they see it as encouraging risky or irresponsible behavior. Businesses that operate on the private market are expected to manage their debts to ensure they can pay the debts they acquire.
For instance, the 2010 Dodd–Frank Wall Street Reform and Consumer Protection Act was passed to end bailouts. The Act states that emergency lending should only be done to provide liquidity when there is enough security for the loan to protect taxpayers and not to aid a failing financial company.