Sample research paper on saving a failing bank

Should the Government Rescue Failing Bank

Classical liberalism, also known as market liberalism or laissez faire is a political doctrine that supports individual freedom with limited government control. Classical liberalism favors free market. Whether a government should rescue failing bank in liberal economy can be answered as both ‘yes’ and ‘no’ depending on the perspective we choose to examine the issue.

Let us first discuss why the government should rescue a failing bank. Classical liberalism represents political and economic liberalism. Individual in such a political dispensation enjoy unbridled political rights, and economic freedom in a free market. However, the role of government is not completely eliminated under this system. The government exists to oversee that individuals enjoy their rights and freedom without any hindrance. A failing bank might lead to adverse economic consequences with severe implications for the common man. The great depression of 1930 shook public faith in unfettered economic freedom devoid of state regulation. The modern liberalism represented by thinkers like Hobhouse, Green, Keynes, and others argued in favor of government intervention in economy to protect liberty but socialism was also to be avoided at the same time. In other words, classical liberalism evolved to various shades and modified versions on the basis of the extent of role that a government may have in a civil society. Therefore, the government in this opinion should intervene lest the people and institutions are rendered bankrupt. A poor person lacks economic freedom because he has no means that would empower him to take decisions and make choices. The loss of economic freedom is a cause that consequences in every other freedom including social and political. The freedom for an individual is meaningful only when he is strong enough to exercise his freedom in different ways such as practice any trade, vocation, or profession of his choice, or sale and purchase whatever he wants to, or exercise his will for and against any issue without being influenced in any manner. Therefore, in the interest of economic liberalism the government must do its best to rescue failing banks.

However, we can use the principles of classical liberalism to argue that the government should not rescue failing banks. Classical liberal espouses free market without the government or any of its agencies interfering in any way. In the present case the banks are failing because of free market conditions. The government neither owns these banks nor interferes in it any other way. Profits and loss in banks are determined by market forces. The market forces have their attendant consequences unique to them. Free markets have their own business cycles, highs and lows, as demonstrated by economic thinkers like Friedman and Hayek. Therefore, citizens opting for free market must be ready for positive and negative consequences as well. As free citizens, they made economic and political choice of classical liberalism; and as free citizens they were expected to be aware of their choice. Free citizens with freedom to choose in a free market economy cannot be expected to repent their decision and plead government intervention when going gets tough. Therefore, failing banks should be left at their own fate as determined by market forces because once the government rescues the failing banks it will do so with several conditions attached. In other words the government intervention entails loss of economic freedom in various ways antithetical to the concept of a free market. The government will impose interest rate, drawing limits, and several other measures that will not be market driven. Moreover, banks that have failed have not failed for ever, nor has the banking system failed. When the business conditions improve the economic system including banks will make a turnaround. Therefore, the government shouldn’t rescue failing bank.

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