In the ongoing financial crisis, we saw stories of bail-outs. It started with bail-outs to financial institutions. TARP (Troubled Assets Relief Program) is 'designed' to help financial institutions with 'toxic' assets. But as we see recently, not only financial institutions are asking for government help. Now the next consumers of this scheme are carmakers, General Motors and Chrysler to name the big players. Their requests have not been granted yet, but they have 'the power' to make it granted.
The powers they have are in form of employees, in form of market share, or even in form of political reason (and many more). When the big guys collapsed, it will increase unemployment rate. Increases in unemployment rate may make the market unstable. Market confidence will be shaken as well, which will lead to slower growth. It also possibly lead to endogenous shock of supply of goods and services. Political reason may play role in this too. Some politicians may be afraid of losing its sponsors. By this assumptions, big players will possibly acts less careful in managing their finances. They will take risks as much as they could, in hope of getting the highest possible return. They believe that, in the end of the day if something bad happens, they will be 'rescued' by the government. Government should not bail-out all troubled big firms, government should signal the market that 'I will not always help you if you are in troubled'. This will make every players be more responsible of their acts. Otherwise, if the government is too 'soft', it will only induce other big players to do the same thing.
Who will request another bail-out? Just wait and see.
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