This article is overdue. Probably by at least two years. I should have written it during the height of the 2008 bank bailouts, when a common thought running through most of our minds was, "This isn't supposed to happen. We never do this. This is America. We don't bail out troubled companies."
Truth is, we've been doing it for decades. While the 2008 bailouts were the largest, they were by no means the first time Uncle Sam has come to the rescue of failing businesses. Here's a brief history of intervention.
1970: Penn Central Railroad
Penn Central was on the verge of collapse in early 1970. It appealed for government aid, claiming it was vital to national defense interests. President Nixon agreed. Congress balked. Bankruptcy it was. Penn Central's collapse left banks holding a huge pile of suddenly worthless commercial paper. The Federal Reserve pumped them with liquidity, easing the burden. Congress then provided loan guarantees and billions in direct spending to create Amtrak, and merged the remnants of Penn Central with other flailing railroads to form Conrail, later privatized in 1986.
Congress passed the Emergency Loan Guarantee Act in 1971 to support major businesses facing a crisis. Lockheed
This action will save tens of thousands of jobs that would otherwise have been eliminated. It will have a major impact on the economy of California, and will contribute greatly to the economic strength of the country as a whole. It will help ensure that the Nation's largest defense contractor, and its largest airframe manufacturer, will continue serving the Nation's needs.
1974: Franklin National Bank
Franklin began bleeding cash in the first few months of 1974 amid foreign currency trades going awry. Depositors started getting nervous. Before long it was an old-fashioned bank run. The Fed swooped in, granting Franklin a $1.75 billion loan to prevent "an international financial panic." Then-Fed Chairman Arthur Burns told Congress the bailout was necessary because, according to a 1974 media report, "if the bank had just failed without government intervention, other banks might have folded also." Franklin was eventually taken over by a European bank consortium.
Detroit began hemorrhaging money in the late '70s as fuel-efficient imports from Toyota
1984: Continental Illinois National Bank
Continental got into trouble in the early '80s participating in what the FDIC called "extremely speculative oil and gas exploration loans" with Penn Square Bank. After Penn Square failed, Continental faced a bank run. The panic came to a head in 1984 when traders in Tokyo stopped rolling over Continental's short-term loans -- the same problem Lehman Brothers faced 24 years later. The FDIC stepped in, guaranteeing all deposit holders regardless of preset limits, infusing capital, and purchasing $4.5 billion in bad assets, effectively nationalizing the bank. Its remnants were eventually sold to Bank of America
1989: Savings and loan industry
The S&L industry went absolutely hog wild in the '80s after the Garn-St. Germain Depository Institutions Act of 1982 allowed thrifts to engage in new business lines they had no experience in. More than 2,000 banks collapsed from 1985 to 1992, and more than 1,000 people were eventually indicted for fraud. President George. H.W. Bush stepped in with the Financial Institutions Reform Recovery and Enforcement Act, which gave birth to the Resolution Trust Corporation, a massive industry bailout that ultimately cost taxpayers $124 billion -- considerably more than the TARP program of 2008.
2001: Airline industry
The airline industry was already in trouble before 9/11. The terrorist attacks delivered what could have been a fatal blow. Two weeks after the attacks, President George W. Bush and Congress stepped in with the Air Transportation Safety and Stabilization Act, providing $5 billion in payments and $10 billion in loan guarantees for lost business after a mandatory grounding of all air travel in the days after Sept. 11; $20 million ended up going to airlines that were already bankrupt.
2008-2009: The mother of the mother of all bailouts: First it was Bear Stearns. Then Freddie Mac and Fannie Mae. Then the banks -- Citigroup
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