Government Bailout For Financial Crisis: Theory And Practice

The U.S. sub-prime crisis since the outbreak in April 2007 had quickly spread to Europe and new emerging market countries and then evolved into a global financial crisis. The financial crisis forced many countries' governments to take out large-scale bailouts——the bailouts plans exceeded those in the previous financial crises in the aspect of the direct nature of the financial aid, the diversity of the aid instruments and the international scale of it. Under the background of the economic and financial globalization, not only a state but even the entire international community could not avoid the outbreak of the crisis. To a large extent, crisis is non-preventable and just could be control and reduce crisis hazards. In many cases, the crisis is unavoidable and a country has to be faced with its surprise shock, we should re-examine the relationship between government and society arising from the bailout. The Government in the end whether or not should to bailout? How should the government bailout? Government bailout in the end will have little effect? Emergency bailout measures will not be on the long-term negative impact on economic and financial development? These issues are worthy of our thinking once again.Although the government bailout of the financial crisis-related research and comments are continues appearing on various newspapers and periodicals, the financial crisis and government bailout for the comprehensive and systematic study is still not appear adequate, and when aware of the need for government bailout of the financial crisis, people are forced to pay more attention to and consider these issues. Based on the above considerations, this article around the two main line of the history and reality tries to build up the framework of the government bailout system for the financial crisis from two aspects of the theory and practice, in order to provide some theoretical and practical references to address the financial crisis and protect the economic and financial stability. The main conclusions are:1. Proposed the content and the border of the government bailout for the financial crisis. Define the government bailout in the narrow sense as the central bank's "lender of last resort" behavior and in the broad sense as all the acts the government and its departments have taken direct and indirectly to financial institutions, financial markets, and the real economy in order to maintain financial system and overall economic stability during the financial crisis. Pointed out that the government bailout border for the financial crisis is when the financial crisis is likely to cause systemic financial risk, and can not be effectively resolved only relying on the operation of financial institutions, financial markets and real economy themselves, and the government must timely take bailout to prevent a domino effect. When the government really starts to bail out the financial crisis, it is often from the main body of the financial crisis, the object of bailout, bailout measures, and bailout fund-raising system to study and implement government bailout of policy arrangements.2. Based on different economics schools'fundamentals and basis on the Government and market relations, fiscal policy and monetary policy effectiveness such as government's "Night Watch" as the market in classical economics, "the government should intervene market" of Keynesian, the neo-liberal critique of government failure, and the new Keynesian selective government intervention, studies different economics schools'fundamentals and cornerstone about government bailout, provide the theoretical explanation of the government bailout. Mainstream economic theory has experienced many years of debate on government intervention in the economy, but more or less reached a consensus:Markets are imperfect nature, there is "failure", and the government should timely and appropriately take intervention in the economy, and should use fiscal policy and monetary policy to bailout especially in the critical period of financial crisis.3. From a practical point of view, study the government bailout measures, characteristics and effects during the Great Depression of the United States 1929-1933, the U.S. savings and loan crisis in 1980s, the Nordic banking crisis in 1980s, Japan's banking crisis in 1990s, and the 1997 Asian financial crisis,and find the tracks and deductive path of the government bailout. Historical practice reminds us that when faced with the financial crisis, the Government must take decisive and timely assistance. Meanwhile, the specific measures of the government bailout are constantly innovating and improving as the history evolution, and there are many success bailout experience can be referred to such as government direct funding, the nationalization of financial institutions, the "Nordic model" of non-performing assets, International Joint relief assistance.4. Sub-prime crisis is the most serious crisis since the Great Depression in 1929 since a, forcing the United States, Europe and other countries launched an large-scale bailouts——the bailouts plans exceeded those in the previous financial crises in the aspect of the direct nature of the financial aid, the diversification of the aid instruments and the scale of international aid. The bailout a lot of liquidity tools are innovated, and currency exchange, multi-nation joint rescue mode are formed during the bailout. The government bailout practice and experiences get further development and improvement.5. the effects of the fiscal and monetary policy of the government bailout have appeared, in the short term,the liquidity of the financial system increased rapidly, financial markets started to return to normal order, successive failures of financial institutions has been curbed and the real economy began to stabilize; but the huge amounts of liquidity released in the early time puts a heavy pressure on the long-term inflationary, the large-scale bailout funds will cause a huge burden on national budget deficits, and the economy is still lack of long-term sustained growth momentum. Therefore, the government bailouts for the financial crisis are facing the withdrawal of aid policy and sustainable development challenges in the long-term. 6. Design a long-term withdrawal strategy of the government bailout policy. To prevent further deteriorating of the financial crisis, the government bailout is necessary, but carrying out the government bailout is not intended to control the financial institutions and financial markets. The role of government is to take necessary regulation when the market mechanism is in failure, so the withdrawal of aid policy is also necessary. The best time to start to withdrawal the government bailout policy is when the economy is in Substantial recovery and the macroeconomic situation has improved out of the financial crisis, and the national conditions, international coordination and cooperation should be taken into account when choice the way of the withdrawal and arrange the steps of withdrawal to ensure the early effects of government bailout continued to play.7. In this government bailout, Chinese government combined the industrial structure adjustment with fiscal policy and monetary policy effectively, achieved remarkable results, and received international attention and recognition.Innovations of this dissertation are in the following areas:1. Improved the definition of the government bailout's content and boundaries. Define the government bailout in the broad sense as all the acts the government and its departments have taken direct and indirectly to financial institutions, financial markets, and the real economy in order to maintain financial system and overall economic stability during the financial crisis. Pointed out that the government bailout border for the financial crisis is when the financial crisis is likely to cause systemic financial risk, and can not be effectively resolved only relying on the operation of financial institutions, financial markets and real economy themselves, and the government must timely take bailout.2. The author applies the analysis of theory with practice in this dissertation, and set up the framework the government bailout system for the financial crisis. The author explains the government bailout with the mainstream economics theory on the state intervention, and studies different economics schools'fundamentals and basis on the government bailout. Based on typical historical events, this article from a historical perspective explored the development and the deductive path of the government bailout. History told us that when faced with financial crisis, the government must take bailout.3. This dissertation attempts to develop a withdrawal strategy for the government bailout in the medium and long term and design a reasonable withdrawal route including withdrawal timing, withdrawal ways and withdrawal steps. This try fills gaps in the theoretical of government bailout withdrawal policy.4. In this dissertation, the author made a comprehensive, systematic assessment on the effectiveness of the fiscal policy and monetary policy coordination during the government bailout on the financial system and real economy through quantitative and qualitative analysis, and made up for the lack of studies of the combined effects of fiscal policy and monetary policy.Despite some innovations, there are still some deficiencies in this dissertation. The impacts of the sub-prime financial crisis is still global ongoing, and with the innovative practice of the government bailout during the period of the financial crisis and post-financial crisis, the theory of government bailout should also be further, and I will continues to improve it in the future.