chAPTeR eleven • The BuReAucRAcy 257
A private corporation has shareholders (stockholders) who in principle elect a board
of directors, who in turn choose the corporate officers, such as the CEO. When a private
corporation makes a profit, it must pay taxes (unless it avoids them through various legal
loopholes). It distributes the after-tax profits to shareholders as dividends or plows the
profits back into the corporation to make new investments, or both.
A government corporation has a board of directors and managers, but it does not
usually have any stockholders. The public cannot buy shares of stock in a typical govern-
ment corporation, and if the entity makes a profit, it does not distribute the profit as
dividends. Nor does it have to pay taxes on profits—the profits remain in the corporation.
The largest and most famous such government corporation is the U.S. Postal Service, with
522,000 employees. Another well-known example is Amtrak, the passenger railway ser-
vice, with a staff of more than 20,000.Bankruptcy. The federal government can also take effective control of a private corpora-
tion in a number of different circumstances. One is bankruptcy. When a company files for
bankruptcy, it asks a federal judge for relief from its creditors. The judge, operating under
bankruptcy laws established by Congress (as specified in the Constitution), is ultimately
responsible for the fate of the enterprise. When a bank fails, the government has a special
interest in protecting customers who have deposited funds with the bank. For that reason,
the failing institution is taken over by the Federal Deposit Insurance Corporation (FDIC),
which ensures continuity of service to bank customers.Government ownership of Private enterprises. The federal government can also
obtain partial or complete ownership of a private corporation by purchasing its stock. Before
2008, such takeovers were rare, although they occasionally happened. When Continental
Illinois, then the nation’s seventh- largest bank, failed in 1984, the FDIC wound up in control
of the institution for ten years before it could find a buyer. The FDIC pumped $4.5 billion of
new capital—provided by the taxpayers—into the bank, ensuring its solvency.The Bank Bailout. The Conti-
nental Illinois rescue provided a
blueprint for the massive bank
bailout initiated by Henry Paulson,
President Bush’s Treasury secretary,
in October 2008. The Troubled
Asset Relief Program (TARP) gave
the Treasury the authority to spend
up to $700 billion. Of this sum,
about $400 billion was actually dis-
bursed by Paulson and by Timothy
Geithner, Obama’s Treasury secre-
tary. The government made invest-
ments in more than eight hundred
businesses, including banks, auto-
mobile companies, and the giant
insurance company AIG.
The bailout program was
tremendously unpopular, but by
2011 most banks had paid back
the government’s investments.outside the front door of Fannie Mae headquarters, Washington D.C.
When the Federal National Mortgage Association (Fannie Mae) started to fail, the federal
government took over. Who ultimately paid for its losses? (Bill O’Leary/The Washington
Post/Getty Images).www
Helpful Web Sites
Two publications are
available online to help
you learn more about
the federal bureaucracy.
The Federal Register is
the official publication
for executive branch
documents. You can find
it by searching on its
name. The second is the
United States Government
Manual, which describes
every federal department
and agency. Type “gov
manual” into a search
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