Chapter 26. 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’.”
Charles P. Kindleberger1
World markets only recovered once investors grew confident that no more big banks would fail or be nationalized. That started a “positive feedback” loop, as confidence made financing easier to obtain in many markets. Governments won that confidence by treating banks with exceptional generosity.
The news that revived world markets came in an internal memo. From October 2008 to March 2009, Citigroup had needed four infusions from the U.S. government to stay afloat. Its ...
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