Strings Attached
How some bailouts create lasting change while others just postpone the inevitable. A deep dive into the hidden logic of rescues, from the auto industry to the art world.
A Tale of Two Bailouts
What do the $15 billion the airline industry received after 9/11, the $80 billion GM and Chrysler received during the 2008-2009 financial crisis, and the $120 billion the savings and loan industry received in the 1980s have in common?
They were a short-term fix for a liquidity crisis. But they did nothing to solve the underlying structural, competitive, or regulatory issues that made those industries inherently fragile in the first place.
By contrast, consider the interventions that actually worked.
The $1.5 billion in loan guarantees Chrysler received in 1979-1980 and the investment that created Conrail from the ashes of the northeastern railroads both came with serious strings attached. These weren’t just investments; they were forced restarts.
This meant new management, new operations, and a government overseer breathing down their necks. The Chrysler bailout was conditioned on its flamboyant CEO, Lee Iacocca, taking a salary of just $1 a year and making all stakeholders come to concession after concession. The Conrail rescue bailed out not six railroads, but one, which it forced to jettison all unprofitable routes. This led to an attractive privatization in 1987.
These interventions forced painful but genuine reform, not just a band-aid.
So why the difference? Successful interventions came with strings attached. The failures were “no questions asked” checks written to protect the very management and practices that caused the crisis. The airline industry is back to where it started, needing another $54 billion bailout during COVID-19.
The best government rescue forces a controlled, bankruptcy-like restructuring. The failed rescues just kick the can down the road.
The Philanthropic Fire Brigade
This pattern is not limited to government. In recent decades, a shadow universe of “philanthropic bailouts” has emerged to rescue organizations at the core of our civic and cultural life.
During the COVID-19 pandemic, a coalition of foundations, including the Andrew W. Mellon Foundation, The Getty Trust, and the Andy Warhol Foundation, coordinated hundreds of millions in emergency funding for the Arts & Culture industry.
And since 2012, the Open Road Alliance has quietly provided $13 million in emergency grants to nonprofits on the brink of collapse with zero defaults to date.
But if government bailouts without conditions are a recipe for failure, why don’t these philanthropic rescues face the same fate?
Different Money, Different Rules
The difference isn’t the money itself, but the constraints and accountability attached to it. Philanthropic interventions benefit from smaller scale, which avoids the “too big to fail” paralysis of federal bailouts. Their incentive structures are also different; with no voters to please and limited funds, they can demand more from grantees. Finally, because their support isn’t permanent, a sense of market discipline remains.
But a closer look reveals a crucial distinction in the nature of the strings themselves.
A Different Kind of String: Restructuring vs. Capacity Building
Here’s the key insight: government and philanthropic conditions are designed to achieve different goals.
Effective government bailouts can force hard restructuring. They have the scale and the leverage to fire management, force mergers, or mandate operational overhauls.
Philanthropic conditions, by contrast, are typically about capacity building. Reporting requirements, program evaluation, and long-term institutional planning are the norm. This is less a crisis intervention and more an investment in stability.
Foundations rarely have the leverage or the inclination to demand the dramatic changes seen in the Chrysler or Conrail rescues. They depend on ongoing relationships and often lack the authority to impose harsh operational conditions. This suggests that while philanthropic rescues may avoid some government pitfalls, they may also lack the transformative power of a truly forced restructuring.
The Downside of Doing Good
This also means philanthropic interventions are not a panacea. Even the best-intentioned rescue can fail to fix a broken model.
A case in point is the Ford Foundation’s Orchestra Program from 1966-1976. The foundation spent over $80 million to improve the finances of 61 symphony orchestras but the grants couldn’t fix the underlying, unsustainable business model. Once the money ran out, many orchestras were still in trouble.
This highlights the other hazards of philanthropic intervention:
Moral Hazard: Organizations with a philanthropic safety net are more likely to engage in risky behavior.
Picking Winners and Losers: Foundation funding reflects donor preferences, not always market efficiency.
Perpetuating Inefficiency: By propping up organizations, philanthropy can prevent the necessary evolution that allows a sector to regenerate.
The Bottom Line
The lesson is not that one type of rescuer is inherently wiser than the other, but that the nature of the rescue matters more than its source.
A bailout without conditions is not a lifeline; it’s just a pause button on an inevitable failure. But even conditional aid is no guarantee of success.
Real transformation doesn’t come from a blank check. It comes from the hard, necessary work required by the strings attached and a willingness to fix the fundamental problems that caused the crisis in the first place.
Join the Conversation
This analysis suggests the conditions of a rescue matter more than the source of the funds. But are there exceptions? Have you seen a “no questions asked” bailout succeed or a highly conditional one fail?
Share your thoughts and examples in the comments below.
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