Worthy of Bailout: To be or Not to be?

Abstract

Sprague (1986) argues that “bailout is a bad word”, that “to many it carries connotations of preference and privilege and violation of the free market principles”, and that “it sounds almost un-American”. “Preference” and “privilege” are the key words in Sprague’s statements, hence the title of this section “cherry picking”. He examines four episodes of bailout, but right from the beginning he asks the questions: “why and how were four institutions selected to be saved”, “why only these four?”, and “why did you save Continental and not my bank?”. He answers the question “why the four?”, by saying that “we were afraid not to”. But why were “we” afraid only in those four cases?