Motivations of Multi-National Companies. Those Term Paper

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The United States government did a number of things to prop up failing/failed companies to the detriment of the United States deficit and through the enabling of companies that were clearly doing wrong. However, they did so because NOT doing so would have been much, much worse. A company like AIG or General Motors falling into the abyss (the latter in particular) would have probably damaged the United States automotive industry for years to given that Chrysler is now longer United States owned, technically (owned by Fiat, an Italian company) and that only leaves Ford as the lone large domestic car company.

The Cyprus situation is no less a moral hazard than the government moral hazard of the United States. Even further, much the same thing happened when GM's bankruptcy was coordinated by the United States government with investors getting talked to like children and otherwise getting the short end of the stick while GM itself and its union made out like bandits.

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In the case of Cyprus, high depositors are feeling the brunt of the poor choices of others (including the government and the bank itself) and this will lead to money (from all sources) going overseas or under the mattress. That all being said, the shift from all taxpayers/the government shouldering the burden of the bailout to the high depositors, while not a perfect solution, is better from a moral hazard standpoint than any of the other alternatives. Not doing anything was simply not an option because the banks failing and/or a run occurring on the banks would have been much more disastrous......

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