You and the Bank Bailouts

According to Martin Wolf, bank bonds comprise one quarter of all U.S. investment-grade corporate bonds; losses would be spread far and wide, hitting other banks, pension funds, insurance companies, hedge funds, and so on.

via A Quick Note on Bank Liabilities « The Baseline Scenario.

The referenced article provides an excellent view of the banking crisis, as well as many excellent comments. It’s all very interesting if you want to dig into it. Most people don’t care about the details and there is considerable resentment of government bailing out Wall Street. But there’s one thing people should care about: if there is no relief for the banks, many pension funds will be in a deep hole. For private pensions, this could result in retirees getting only a fraction of what they were promised. For public pensions, this could result in huge state and local tax increases.

The idea behind the bank bailouts is to tide the banks over until times get better. When and how things get better is a matter of conjecture. There are lots of scenarios described by lots of analysts, but they all have one thing in common. We have been living beyond our means. We will not only have to start living within our means – we will have to live below our means to pay for the excesses of the past. Everything else is just detail.


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