What is a Bailout Bond?
How Does a Bailout Bond Work?
Company XYZ is in the newspaper industry and has seen a dramatic downturn in its advertising sales. The company's board believes that if it can launch an interactive digital version of its product, which has been in development for two years, it could become a viable business again.
Company XYZ publishes the only paper in the county, and Company ABC loves the newspaper. Company ABC agrees to buy from Company XYZ, giving it enough to launch the new digital product.
Sometimes governments indirectly bailout bonds. In the 1980s and 1990s, the Resolution Trust issued bailout bonds to help failing savings and loans. The U.S. Treasury agreed to guarantee the bonds.
Bailouts can be loans, but they can also be , , bonds, or other forms of money.
Why Does a Bailout Bond Matter?
Bailout bonds essentially get companies out of trouble. Because they are bailouts, bailout bonds are a challenge to capitalism in its purest sense. Critics of bailouts argue, for example, that companies should be left to succeed and fail on their own merits, and that supply and demand in the free markets always determine the worth of goods and services. Supporters of bailouts argue that bailouts are sometimes the lesser of two evils when it comes to a company failing and displacing thousands of workers.