Free Bailout Nation by Barry Ritholtz

blames Wall Street for being too focused on the short-term profits. Regardless, we receive assurances that this is a temporary setback, and the company’s fundamentals are solid.
    Large institutional interests typically have billions of dollars that are put at greater possible loss due to the risk event. Whether they are hedge funds or mutual funds, investment banks or pension funds, the financial sector especially has the ear of the Federal Reserve and the U.S. Treasury secretary. When markets go through their regular cyclical downturns, public officials become increasingly pliable.
    Ironically, it is often those who have built their names and reputations on free-market bona fides who plead and scream for intervention. Creative destruction is a brilliant concept to discuss in grad school, but with real money on the line, it becomes readily dismissed as an abstract academic concept.
    7. Broader worry, deepening panic: The public’s prior hazy understanding is coming into sharper focus: Some company or industry is less than healthy.
    We now enter the acceleration phase.
    There are more stock price declines, as it becomes apparent this is a very significant issue. As it progresses, the forecast of repercussions expands from worrisome to dire. By now, the mainstream media are covering the issue much more closely. The public is increasingly concerned.
    Those with the most money at stake have become downright frightened. Some have bought the stock or sector the whole way down. Others have been frozen, unable to move, watching the car wreck in slow motion while capital got destroyed. Various options are explored. Alternative plans are discussed. Insiders slowly come to realize that none of these plans can happen fast enough or generate enough capital to resolve the issue.
    The risk event is rapidly approaching the point of no return.
    8. Major intervention/bailout: The political class eventually finds itself unable to resist temptation, and answers the call of some constituency or political campaign donor. We begin to hear phrases like “systemic risk” or “economic catastrophe.” There is a tremendous incentive to overly dramatize the risk event, so as to improve the likelihood of some form of legislation passing.
    Invariably, some well-meaning politician, columnist, or other observer will warn about the negative consequences that will accompany this intervention. The phrase “moral hazard” will be bandied about. Most often, these arguments are summarily dismissed.
    Sometimes events move so quickly there’s no time for a full and open debate, leaving that discussion to the historians.
    Finally, the bailout plan comes together. It is quickly signed by the president and is perceived as the lesser of two evils, a better alternative than letting Joseph Schumpeter’s creative destruction have its way with the subject of our concern.
    9. Rationalizations and apologies: In a manner bereft of contrition, officials explain why this was absolutely necessary. They warn of the horrors that would have befallen us all if the bailout hadn’t been enacted in haste. Congressional hearings are held, often with the same executives who lobbied for the bailout testifying before the very same members of Congress who approved the package.
    The executives use phrases like “100-year flood” and “act of God,” and say they “feel terrible for the employees who dedicated their lives to the firm and now have seen their life savings and pensions wiped out by this perfect storm of unforeseeable events.”
    The members of Congress say: “My constituents are outraged!”
    â€œHow could you let this happen on your watch?” “Why were the warning signs ignored?” “You made how much money last year?” “Thanks for the campaign donations.”
    10. Expected results and unintended consequences: The bailout is put into effect sooner rather than later. It usually