You might say

that bankruptcy simply speeded up things that were going to happen anyway.  But who knows for sure? Should Lehman Have Been Allowed to Fail?

There is pain coming.  The question is how much.

I now wonder about the national accounts identity: Savings=Investment, although my thoughts are still confused.

I now believe for that ex-ante, bailing out, or even the possibility of bailing out was a bad idea, unless the bailout rules were crystal clear.  We have deposit insurance for banks.  But that comes along with capital requirements.  Of course the government has implicitly said that bailing our mortgages was a possibility all along… 

I am discouraged that many people seem to be forgetting that the majority of subprime mortgages are still being paid back.  And that not all the risky loans were to poor people.  And the problem was the re-levering of the loans, not who the loans were made to.  We are going to live with the effects of current events for a long, long time.

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