> On the other hand, billions to trillions of dollars of wealth that everyone thought existed turned out not to be there. It didn't disappear; it was discovered

> On the other hand, billions to trillions of dollars of wealth that everyone thought existed turned out not to be there. It didn't disappear; it was discovered in the financial crisis that it never existed and the crisis was when that fact became uncontroversial in the mind of the general money manager. > That part was clearly predictable in an emperor-has-no-clothes fashion and probably years in advance as well. It seems highly likely that if the people with power didn't see it shaping up then they were choosing not to see. I don't think it was predictable in any useful sense. First, I don't think anyone knew that (or when) "the general money manager" would "become aware of the facts". Second, I don't think anyone knew that would happen if they became aware of the facts. So maybe it was predictable in a "there will definitely be a recession...sometime" sense, but that's not helpful. Even if some people did identify "billions to trillions of missing wealth" and predict the crisis (and apparently some people did), there wasn't any way to know which of those predictions was correct. There is no one who predicts things who is always right and there is no agreed-upon theory to tell us when these things are going to happen before they happen with any precision. To put it another way: there are smart people who predict financial crises that never happen all the time. > I suppose the point I want to make is that there is a frame here that 'saving Lehman' would have been a win. It wouldn't be a win. They were complicit in mis-allocating resources; 'saving' them just gives them more time to redirect real effort into bad causes, and makes the final reckoning more painful when people need to call on real resources that turn out not to be there. The books were misleading; protecting them would just have let more people make bad decisions based on misleading figures. Markets work best when people don't do that, and I understate by an order of magnitude or two when I say that. This is a different argument. I guess there are two things to worry about: 1. Making the responsible parties pay for their malfeasance (justice) 2. Making decisions that will benefit the economy (pragmatism) It's entirely possible that bailouts ticked the second box but not the first. But, as you argue, in the long run, not bailing out the lenders might tick both boxes because it will teach them a lesson. However, that's a hard sell for Americans living between 2008 and 2012, who probably did benefit from the bailouts, even if they were unjust and even those bailouts only deferred some larger, inevitable crisis. I don't envy the people who have to make these decisions.