Appeared on October 12, 2008
Who should get bailed out? Who should not? In the piecemeal approach that the government followed prior to the comprehensive $700bn rescue plan, the chance for an ailing institution to be bailed out in this financial crisis depends on several factors including size, connectedness and sophistication of investors. If you have the size, like Bear Stearns, Fannie Mae, or Freddie Mac, then you will get support from the government to dodge the crisis. What if you are the fourth largest investment bank (ie, Lehman Brothers)? You will be let go to bankruptcy! But if you are Merrill Lynch, you will be rushed to fire-sell yourself to a very large commercial bank.