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Why Have Government Bailing Out Financial Institutions?

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Why Have Government Bailing Out Financial Institutions?
Bailing out financial institutions has been the talk of the world for the past several years. This essay explains why have governments bailed out financial institutions in the 2008 financial crisis, and why have they been bailing out financial institutions for the past decades. By referring to historical examples it is shown that these actions cause more and bigger problems for the future than the ones they are supposed to solve. The conclusion reached is, for in order to the financial sector to reach such desired stability, governments must stop guaranteeing financial institutions losses with taxpayers money. Only then will the agents who lend money to financial institutions will have incentives to police themselves the financial institutions. …show more content…
It is the mere fact that the government didn’t save Lehman Brothers that caused the 2008 panic, because the financial markets assumed the government would do so.

Would the world be better of if the US government had saved Lehman Brothers? Maybe in short run, but the crisis would have occurred anyway. Because financial institutions believed governments would always bail them out, their business models and risk models were berzerk. Financial institutions would lend money to anyone who could breathe, had a name and social security number, as satirized in the movie “The Big Short” where a family renting a home finds that the landlord had put the house under his dog´s name. Common business knowledge like lending money only to credit worthy borrowers was a practice of the past.

Solution
So the question is how do we solve this? How do we bring sanity back to the financial sector without making tax payers pay even more?
Well, it is not by creating thousands of new regulations, laws and an army of regulators, as they are being created now, only to result in more public expenditure. Financial institutions have their own armies of lawyers, accountants and lobbyists that can easily work their way around these
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