Bank Bailout Books
Bailout books typically describe government bailouts received by the banking industry. The best bailout books analyze the advantages and disadvantages of using this kind of financial support to keep banks in business.
Nonfiction books are often a measure of how society has changed, and the growing number of “Bailout Books” is a timely illustration of changes in the banking industry. Although banks have received bailouts in earlier periods, there are several aspects which make the current circumstances especially noteworthy.
- The “banking rules” have changed since the 1999 repeal of the Glass-Steagall Act.
- Financial events during the past five to ten years have impacted most individuals in some way on a worldwide basis.
- The recent banking problems began under one President, George W. Bush and continue under another President, Barack Obama.
- Banking lobbyists have been growing in number and power.
- Bank failures and “troubled banks” rapidly increased in number and have remained at historically high levels.
While the drama involving banks and bankers has frequently contained action, adventure, mystery and suspense, it is worth remembering that the bailout books described here are based on real events and real people.
Why Do Banks Need Bailouts?
This has become a politically-charged question. It is suggested that each individual form their own opinion based on reading the recommended books and many other sources. It is fair to say that there are many factors at work. Some of them are summarized below:
- The full impact of using leverage via complicated financial instruments such as derivatives was not fully understood by banking institutions.
- Real estate values fell very quickly and have not yet recovered.
- Banks have assumed more risk since the repeal of the Glass-Steagall Act.
- The concept of “Too Big to Fail” was used to justify saving the largest banks because their failure would have had a potential domino effect on the entire financial system.
- “Zombie Banks” which have significantly more liabilities than assets suddenly became more common.
Where Did All the Bailout Money Go?
This is a major topic of most bailout books. There is no shortage of “mystery and suspense” on this issue, so be prepared to put your detective's hat on and “follow the money” if you can.
On the one hand, there are questions about where the bailout funds went once the banks received their payments. There is even a specialized economics term (“fungible”) to describe the bank viewpoint that all of their assets are so intertwined that it is not possible for them to describe in detail where all of the bailout money went. This particular bank explanation might be difficult for even the most ardent fan of banks to swallow.
On the other hand, the government had some discretion in how bailout funds were distributed, and there is some controversy about how the allocation process worked. In particular, Neil Barofsky covers this aspect exceptionally well in his book entitled simply enough, “Bailout.” Of course, the subtitle is much longer: “An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street.”
What About Zombie Banks?
One of the most controversial aspects about bank bailouts has been the observation that some banks should have been allowed to fail rather than saving them with taxpayer-funded bank bailouts. The most common example is banking institutions referred to as “Zombie Banks” because they have a negative net worth. This means that their liabilities exceed their assets, and the lending capabilities of such banks are severely limited. This is not a desirable financial condition for banks of any size.
Perhaps the primary rationale for recent bank bailouts has been to enable banks to restore normal lending activities. However, “Zombie Banks” as well as many other banks have still not resumed a normal level of small business loans. In the case of “Zombie Banks,” the banking institutions might not have enough capital.
For small business owners in particular, the questions and financial problems about “Zombie Banks” can impact the ability of small businesses to obtain needed working capital and commercial real estate loans. Some of the critical questions which small businesses and individuals need to be asking:
- Is my bank a Zombie?
- Should I fire my bank?
- What is my Plan B for commercial financing?
Copyright © 2014, Stephen Bush. All rights reserved. AEX Commercial Financing Group
Stephen Bush is the CEO of AEX Commercial Financing Group. He is a small business consulting expert who helps small businesses throughout the United States and Canada. Steve can be reached directly by email, phone, or by sending a message from the "Contact" section of this website.
Video: What Is a Bank Bailout?
Recommended Bailout Books
Bailout by Neil Barofsky
This is genuinely an insider's view of what really happened with the bailout decisions during the most recent banking crisis.
This excellent book is written by a very well-informed industry observer. It includes an overview of previous bailouts in addition to 2008. Such a perspective is valuable because bailing out the banks is a recurring mistake that has been made.
13 Bankers: The Wall Street Takeover
A disturbing but true story about how the big banks that were the primary cause of the 2008 banking crisis have gotten even bigger since then.