Commercial banks have to be bailed out by governments then governments have to be bailed out by commercial banks.

Should Bondholders be Bailed Out?

Who Should Be Bailed Out?

But Spain and Italy are too large to be bailed out.

In the end, both have to be bailed out by central banks.

Nor have the oligarchs been bailed out.

But risk takers have every incentive to try their luck again, knowing that, at worst, they will be bailed out.

They can undertake risks that others cannot, knowing that if they fail, they may be bailed out.

Greed has to be controlled by fear of loss, which derives from knowledge that the reckless institutions and agents will not be bailed out.

But, for the major players in the financial sector, it is much more appealing to be bailed out by the taxpayers.

But if bankers know that they will be bailed out in bad times, they have an incentive to make risky loans.

When AIG was bailed out to the tune of 85 billion, the market fell 5 .

The market decided that this might also apply to the Irish government, which then had to be bailed out by the European Financial Stability Facility (EFSF).

Too big to fail banks, and the markets in which they participate, now know that they can expect to be bailed out if they get into trouble.

So governments bailed out banks and economies, producing a sovereign debt crisis.

In Germany, many consider the EFSF a breach of the fundamental principle that EU governments cannot be bailed out by their partners.

Governments that bailed out private firms now are in need of bailouts themselves.

But, contrary to populist rhetoric, it is not just rich, well connected bondholders who get bailed out.

Given their systemic importance, many were bailed out and, with continued official support, returned to profitability quite quickly.

Of course, it was bailed out along with all the other money market funds.

Although Greece was bailed out a year ago, Plan A has now clearly failed.

But, given the huge size of China s credit bubble and the enormous amounts of money needed to recapitalize the banking system, only some of them will be bailed out.

Mass financial failure is costly, even if no one, big or small, is bailed out.

Given the current level of official resources at the disposal of the International Monetary Fund and the European Union, Spain now seems too big to fail yet too big to be bailed out.

In 2008, when the Landesbanks were found to be full of American subprime mortgages, the German government bailed them out with a 500 billion ( 650 billion) rescue package at its taxpayers expense.

MUNICH With pain and misgiving, the United States Congress bailed out Wall Street in order to prevent a meltdown of America s financial system.

Finally, despite all the warnings about moral hazard, Western banks have been partly bailed out of their bad investments.

Central banks and finance ministries are also complicit, since debt gets bailed out far more aggressively than equity does.

When Bear Stearns creditors were bailed out to the tune of 30 billion in March, the rally in equity, money, and credit markets lasted eight weeks.

Of course, before being bailed out by governments, banks had never made any return in their history, assuming that their assets are properly marked to market.

Meanwhile, in the eurozone, Italy and Spain are now at risk of losing market access, with financial pressures now mounting on France, too. But Italy and Spain are both too big to fail and too big to be bailed out.

Forcing a debt for equity swap or debt forgiveness would be no greater a violation of private property rights than a massive bailout. But, for the major players in the financial sector, it is much more appealing to be bailed out by the taxpayers.

The medics have previously done it and were bailed out yet still face trials, where they are set to serve between five to 15 years in prison if charged.

And such requirements would reduce the likelihood that strong banks would be called upon to finance the resolution of failed institutions. (Of course, these considerations are less relevant if bankers expect to succeed in blocking all regulation aimed at reducing excessive risk taking, and to be bailed out in a crisis.)

He identified a source of revenue the tariff that could be devoted to this end, and he rendered the bargain politically palatable by making clear that if state governments accumulated additional debts, and again got into trouble, they would not be bailed out a second time.

Interest rates were slashed, insolvent banks were bailed out, the printing presses were turned on, taxes were cut, and public spending was boosted.

Debt investors, not the government, would have bailed out the banks, making the financial crisis substantially smaller, if it had occurred at all.

Not only were too big to fail financial institutions bailed out, but the distortion has become worse as these institutions have become via financial sector consolidation even bigger.

But how far should such interventions go? In contrast to the recent rash of bailouts, future government bailouts should protect only some creditors of a bailed out institution.

Then, distressed sovereigns that had already lost market access Greece and Ireland were bailed out by the International Monetary Fund and the European Union.

We gritted our teeth and for the sake of our national economies supported our governments as they bailed out the banks with public money.

But, while these considerations provide a basis for providing full protection to depositors and other depositor like creditors when a financial institution is bailed out, they do not justify extending such protection to bondholders.

The fact that the Bank of England bailed out Northern Rock and the US Federal Reserve saved Bear Stearns with 30 billion suggests that they were right.

If Europe credibly volunteered funds to buy back all Greek debt, the Greek risk premium would disappear and private investors would be fully bailed out. Only the probability of a default and the goal of avoiding even deeper haircuts can induce investors to liquidate their positions at a discount.

Overall, the international financial authorities have handled this crisis the same way as they handled previous ones they bailed out failing institutions and applied monetary and fiscal stimulus.