Bankruptcy

A Class on Bailouts

By Bob Lawless

In early 2008, I had to figure out what courses I would teach in the next academic year, and it was decided that I would offer a seminar of some sort in the 2009 spring semester. "Just call it a seminar on consumer credit as a placeholder in the course listing," I said. It seemed likely that such a seminar would be timely. Who knew? By the fall, of course, we were in a full-blown financial crisis, and the seminar became the Bailouts class.

Students looking for me to lecture from the front of the room with answers will be disappointed. I have more questions than answers. Although the seminar became more of a class as enrollment grew, I still intend to conduct the class principally as I would in a seminar with emphasis on reading and discussion.

Consider one issue that kept coming up as I went to put this class together. It became increasingly difficult to get a handle on exactly what a bailout is. During the current crisis, pundits scream for or against various proposals and invoke the "b" word often. Usually, the term "bailout" is used in derogatory fashion as its user tries to invoke an image of an undeserved government handout. I began to wonder whether the term had any real meaning or was just a word used to characterize a situation for political gain. How do we distinguish a "bailout," for example, from an ordinary government "subsidy?" Is the fact that bailouts usually occur amidst some crisis? Is a bailout just a subsidy decided under hurried political conditions?

My goal is for the course to explore four questions:

Maybe the third and fourth questions are the same, although my notion is to separate the theoretically pure inquiry from the practical political reality implied by the fourth question. It should be a fun semester.

Full post as published by Credit Slips on January 21, 2009 (boomark / email).