Chapter 5. Banks Bounce

After a crash has occurred, it is important to wait long enough for the insolvent firms to fail, but not so long as to let the crisis spread to the solvent firms that need liquidity—“delaying the death of the strong swimmers.”1

—Charles P. Kindleberger, economic historian

World markets recovered only after investors grew confident that no more big U.S. banks would fail or be nationalized. That started a “positive feedback” loop, as confidence made financing easier to obtain. Governments won that confidence by treating banks with exceptional generosity.

The news that turned around the U.S. and European markets came in an internal memo. From October 2008 to March 2009, Citigroup took four separate bailouts from the U.S. ...

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