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You make a lot of assumptions that are not necessarily true. Markets didn't collapse (went down 4% I guess) after Lehman went bankrupt and Lehman was at no poin

You make a lot of assumptions that are not necessarily true. Markets didn't collapse (went down 4% I guess) after Lehman went bankrupt and Lehman was at no point of systemic importance, which crucially, lots of proponents of bail-outs made it out to be. Some market players believed so, but it turned out to be wrong - people tend to overestimate such things because you cannot disprove them. This is exactly the same reason Greece should not be bailed out. Not every debt obligation is going to be called on immediately because lots of players are going to look for a save haven for their money, there will be contrarians etc. Lehman showed us that the whole melt-down scenario is probably (no one can be sure) overblown. And considering the social costs of moral hazard, one can make an equally valid argument, that it's no one's business to bail out any private enterprise or country.

raheemm 17y ago
"You make a lot of assumptions that are not necessarily true." These assumptions were made by leading economists and bankers(Ben Bernanke, Gov of Bank of England, Treasury sec, etc) and they are also based on direct experience from the great depression, the Asian financial crash/contagion of the 90s, etc. "people tend to overestimate such things because you cannot disprove them." The problem is that during a financial panic, you cannot make reasonable estimations. History shows financial panics to be very, very destructive. And in our highly interdependent economies, a financial panic is far more destructive than previous times. The most effective way to deal with financial panics seems to be bailouts. We may not like it, and rightly so. But what choice is there?