The One Percent Doctrine and the Financial Meltdown.

Ilya, citing a column by Steven Landsburg, asks why a bailout is necessary. In Landsburg's words, "Just because the banks disappear doesn't mean the lenders will. Borrowers will still want to borrow and lenders will still want to lend. The only question is whether they'll be able to find each other." That's the question and the problem with answering the question is that no one knows the answer. History suggests, however, that the probability they won't "find each other" is not zero; let's call it one percent. If there is a one percent chance that the current financial meltdown causes a catastrophic outcome—not just people out of work and the reduction in the standard of living, but predictable bursts of xenophobia, beggar-thy-neighbor policies, global political instability, and all the rest—how much should the government do to prevent that from happening and at what cost? Does this question sound familiar? What about the government's answer?