Junior asks dad: where do bailouts come from?

Junior asks dad: where do bailouts come from?
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First Published: Mon, Dec 22 2008. 10 28 PM IST

Updated: Mon, Dec 22 2008. 10 28 PM IST
Junior had been watching Mom and Dad sulk around the house for weeks, wondering what was going on. Mom still tucked him in at night, and Dad played stick ball with him on weekends. Yet, both parents seemed distracted and detached.
Finally, he could stand it no longer.
Mom, Dad, what’s wrong? You seem so depressed.
Well, son, his father began. Your mother and I have lost a lot of money in the stock market, like many other people who work hard and save to send their kids to college and provide for themselves in their retirement. We don’t like to burden you. I see now that we should have explained what was going on a long time ago. Sit down, Junior.
Thanks, Dad. I get upset when I hear kids at school talk about their dads’ companies getting bailed out. What does that mean?
The government has been handing out money to banks, other financial institutions—even the auto companies. It hasn’t done much to help middle-class folks like us, which isn’t fair.
Mrs Adams talks about fairness a lot in school, Junior said. She says it’s not fair for some people to be very rich and others to be very poor, that the government should do something about it.
That’s right, son, Dad said. The rich should pay more in taxes to reduce the gap between rich and poor, something they call income inequality.
You mean, someone should punish them for being rich? That would be like Coach putting me on the bench after hitting that grand-slam home run in the bottom of the fifth in the Little League championships. Why would Coach Perkins want to do that?
Er, it’s not the same, Junior.
Yeah, it is. Didn’t you always teach me to stick up for myself? If Coach Perkins isn’t going to play me, I’m not going to stick around. I’ll go play for the Hornets, where I’ll be rewarded for my effort and talent.
Let’s move on. Did Mrs Adams tell you how we got into this mess? Banks loaned money to people who really couldn’t afford a home of their own. When house prices started to fall, these homeowners had no way of paying the interest on the loan. So they lost their homes.
That’s sad, Dad. Are we going to lose our house?
No, son. Your mother and I have always lived within our means.
What happens to the people who get kicked out?
The government has been trying to help, encouraging lenders to give them new loans.
If they couldn’t afford the old loan, how can they afford the new one?
Junior, you ask too many questions. The government is bailing out the banks because without them, no one could get credit—borrow money. The government is bailing out US auto makers because it doesn’t want to put a lot more folks out of work at a time when the unemployment rate is already soaring. And because the US needs its domestic auto industry.
Why? KB Toys is going out of business, and you and Mom still bought me toys for Christmas. I know I’m not supposed to know, but I peeked in Mom’s closet.
This is more complicated, son.
How do you get a bailout, Dad? Does it go to good or bad companies?
I know it must sound strange, Junior. Many of the companies getting government money did bad things. They took risks with other people’s money. They padded their own pockets instead of watching out for their customers. And they lost a lot of money in the process.
How do you get paid to do bad things? You don’t give me my allowance unless I walk Rusty after school, take out the garbage and clean up my room.
You’re right, Junior. The government should really help those in need.
C’mon, Dad. If it were that simple, the government could write everyone a cheque for a million dollars, and make us all rich.
Junior, I can tell you really have a knack for this stuff. I’m glad I could help you.
Thanks, Dad. Do you know where Mom is?
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First Published: Mon, Dec 22 2008. 10 28 PM IST