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What Is a Bailout? History and Coronavirus Bailouts

A bailout provides temporary financial relief for both consumers and businesses.

As the number of cases of people who have tested positive from the coronavirus in the U.S. rises, it has thrust the economy nearly to a standstill. 

The number of Americans who filed for unemployment rose to to nearly 17 million and is expected to rise as more states are issuing stay-at-home orders.

How Does a Bailout Work?

President Trump signed a $2 trillion aid package on March 27 after the stimulus package was passed by both the Senate and the House of Representatives. The bailout is intended to serve as a temporary reprieve while many businesses are closed and millions of Americans face unemployment.

The shutdowns due to the coronavirus forced many small to medium-sized companies to close their businesses and lay off millions of workers. These former employees now face the challenge of how they will pay monthly bills such as rent,  mortgages and car payments.

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With the passage of the federal bill, millions of stimulus payments will be sent to Americans. Adults are expected to receive $1,200, but the amount varies depending on the individual's income level. Children age 16 or under would receive a $500 payment.

Unemployment benefits were extended by another 13 weeks and allow for freelancers and other part-time workers to be included in them.

Why Does the Government Do Bailouts?

The government conducts bailouts in order to stabilize the U.S. economy and save jobs. The bill allocates $350 billion in loans to small businesses, establishes a $500 billion government lending program for companies, states, and municipalities and gives $100 billion to hospitals fighting the pandemic. The bailout includes $60 billion for the airline industry, 

Notable Bailout Examples

The U.S. was forced to bail out businesses and taxpayers in the past. The most noteworthy government interventions included:

  • Great Depression 
  • The 1989 savings and loan bailout 
  • 2008 financial crisis and the collapse of investment bank Bear Stearns
  • Saving American International Group  (AIG) - Get Report, an insurance behemoth 
  • Government-backed mortgage lenders Freddie Mac and Fannie Mae

Coronavirus Bailouts

Other countries are providing businesses and people much-needed funds during this pandemic.

Canada's Parliament adopted the COVID-19 Emergency Response Act unanimously in March. The $107 billion package includes $2,000 a month for a maximum of four months for taxpayers to help out with the loss of income and $650 billion for businesses. 

The British government's package will be the equivalent of more than $75 billion, including $3,084 a month for workers, nearly $38 billion for allowing businesses to skip paying the VAT until June and funds to support UK businesses.

Italy's government will spend the equivalent of more than $31 billion on companies and its employees. Another $371 billion of financing will be available.

France will allocate $49 billion in a stimulus package. 

The Danish government will pay 75% of employees’ salaries or a maximum of  $3,288 per month for private companies. 

China's government is reportedly planning $394 billion of infrastructure spending, that will be guaranteed by local government bonds.

In Australia, the government is planning a package of  US $197 billion of spending and available borrowing. The bailout includes subsidies of US $960 for wages biweekly for each employee.

Japan's government will spend $4 billion to aid small and mid-sized companies.

In Germany, the government approved a $800 billion package, plus additional funds for loans, government stakes in companies and provide credit to keep businesses open.

The Spanish government will allocate up to $219 billion in funds. This package includes $109 billion of guarantees for company loans and $18.5 billion of direct support for businesses.

Great Recession Bailout

During the Great Recession in 2008-09, the U.S. approved the passage of the Emergency Economic Stabilization Act of 2008 for a $700 billion package. The package bailed out numerous companies, including AIG, Bank of America,  (BAC) - Get Report Citigroup,  (CITI)  JPMorgan Chase, JPM Morgan Stanley  (MS) - Get Report and Freddie Mac and Fannie Mae and consumer debt such as mortgages, car loans and credit card debt.