The role of the banks in terms of decreasing unemployment, maintaining Essay

The role of the banks in terms of decreasing unemployment, maintaining price stability and facilitating economic growth - Essay Example Capitalism tends towards the idea that organizations are in good luck when they make significant profits but its tough luck when they make significant losses, getting neither sympathy nor envy. However, the economy today is not a pure free market but, rather, it is a mixed economy, in which the markets are regulated by a government instituted framework. In addition, the government also carries out various functions, instead of leaving the private sector to make decisions (Mitchell, 2014: p61). The banking sector is a prime example because of their importance to the economy, including management of loan and savings facilities. The banking crisis of 2007 initially led to a rush by UK citizens to withdraw their money all at once, meaning that banks would have failed since they would have been unable to pay, portending potentially incalculable damage to the UK economy. It was, therefore, the responsibility of government agencies to stabilize the system by supervising banking activities and propping up banks that threatened to destabilize the system through bailouts (Cordella & Levy-Yeyati, 2013: p34). In essence, it is the people owed money by the banks that the government is bailing out. In addition, some of the biggest investment banks in the world are institutions that are so critical to the market and job creation that they have gradually come under the control of the government. This explains the bailout of AIG by the US government with a $100 billion loan that ensured American businesses would not collapse if they suffered losses, hurting national employment levels. Takeover of big mortgage guarantors in the UK, such as Bradford and Bingley, was also necessary because, in spite of its private shareholding, it was a de facto agency of the government and, in effect, the public (Cordella & Levy-Yeyati, 2013: p35). Failing to nationalize the company would have