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Bailout Nation: How Greed and Easy Money Corrupted Wall Street and Shook the World Economy by Aaron Task, Barry Ritholtz

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Intermezzo: A Pattern Emerges

As we progressed deeper into the history of bailouts, comparing them to the present, it became increasingly obvious that just about all American bailouts follow a consistent blueprint. This consistency was remarkable from event to event, regardless of the underlying corporate sector, the amount of money involved, or even the decade in which the bailout took place.

What does the prototypical bailout look like? Something like this:

Ten-Step Bailout Pattern

  1. Risk event: Typically of the company's own making, it might be something as general as leverage or as specific as collateralized mortgage-backed securities. Regardless of the particular causes or complexities of these risk events, rest assured that a very significant amount of money is at risk. It is not only the company, but a series of related investments that are also endangered. This means monied parties—usually well connected on Wall Street and in Washington, D.C.—have a vested interest in not allowing the natural course of events to occur.

  2. Preawareness: At first, the risk event is known to only a small coterie of experts such as junior researchers who are easily dismissed, and academics, easily derided as nonpractitioner theorists. The early observers during the precrisis write papers, attend conferences, and discuss industry specifics. More recently, they swapped e-mails and linked to blog posts.

    Despite the warnings, the industry itself continues with business as usual. Cries of "Chicken Little" ...

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