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In his latest State of the Union address, President Barack Obama said that, although the bail-out of the banking system was "about as popular as a root canal", the government had implemented a "financial rescue programme". What did he mean by the expressions "bail-out" and "rescue"?  

If a shopper uses his credit card to buy something and clears the debit in his monthly statement, we do not say that the credit card company has "bailed out" the shopper or "rescued" him. If an individual takes out a mortgage from a building society to buy a house and repays it, we do not say that the building society has "bailed out" the individual and "rescued" her. If a company uses its overdraft to finance working capital and repays the overdraft when cash comes in, we do not say that the bank has "bailed out" the business, and we do not describe the sequence of events as involving "rescue" or "assistance" on either side. 

More generally, when loans are taken out and repaid on time with interest, the creditor has no further claim on the debtor. Borrowers do not have to pay lenders some extra amount, assessed retrospectively, to compensate for risk. All this is surely common sense. However, when we come to transactions between profit-seeking commercial banks and the state, words change their meaning. 

For over a century, since Bagehot's 1873 classic Lombard Street to be precise, hundreds of textbooks have said that the central bank is a unique organisation which acts as banker to the banking system. 

Sure enough, some central bank loans — so-called last-resort loans that may continue for many months and involve some risk of not being repaid — may carry special conditions. Nevertheless, if loans from the central bank to commercial banks are repaid, there is no need to strain the English language, and to talk about "bail-outs", "rescues" and "government assistance".

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