The Ultimate Irony

Never before has so much taxpayer money been dedicated to save an industry from the consequences of its own mistakes. In the ultimate irony, it went to an industry that had insisted for decades that it had no use for the government and would be better off regulating itself--and it was overseen by a group of policymakers who agreed that government should play little role in the financial sector.

Too Big to Fail

Another problem is that a failing institution could have thousands of open transactions with its counterparties, which are largely other financial institutions.
Finally, the failure of one bank can cause investors or counterparties to lose confidence in another, similar bank.
For these reasons, many people have said that the real problem is not the size of the bank (convenientially measured by the total value of its assets), but its interconnectedness. But whatever the term "too big to fail," "too interconnected to fail," "systemically important" (preferred by Ben Bernake), "tier 1 financial company" (preferred by the Treasury Department)--the fact remains that certain financial institutions cast a sufficiently large shadow over the financial system that they cannot be allowed to fail...

America's Economy: The Emerging Market Crisis

Crises were for countries with immature economies, insufficiently developed financial systems, and weak political systems, which had not yet achieved long-term stability--countries like Thailand, Indonesia, and South Korea. These countries had three main characteristics that created the potential for serious instability in the 1990's: high levels of debt, cozy relationships between the government and powerful individuals in the private sector, and dependence on volatile inflows of capital from the rest of the world. Together, these ingredients led to economic disaster. Debt-fueled booms, collapsing bubbles, and panic-stricken financial systems were all reminiscent of the Crash 0f 1929, but the conventional wisdom was that the United States had put these growing pains behind it, thanks to strong corporate governance, deposit insurance, and robust financial regulation. Emerging market crises were an opportunity for the United States to teach the world how to deal with financial crises. Few people suspected that, despite the many obvious differences between emerging Asian economies and the world's largest economy, some of those lessons would be relevant to the United States only a decade later.