It was “hold your nose and save Wall Street” or a return to the dark ages. As Joseph Stiglitz, Willem Buiter and Paul Krugman were at pains to point out back then, an alternative existed: we could have done a GM/Chrysler on the banks. Expropriate the equity holders, pay 15 cents on the dollar to the bondholders and nationalize. Had we gone down that route, there would have been different winners and losers. Small business would have been a massive winner.

Rather than create zombie banks that are too busy pretending Ford is a great company (Ford owes banks 24 billion) and commercial real estate is about to turn a corner, they would carry on extending credit to small business. Sticking money into the zombies has had 100% the opposite effect of what was advertised. It has caused “extend and pretend” to the borrowers who are too big to fail and has throttled the little guy. Business was a loser.

The newspapers have us think that bankers were the winners. We did not do too poorly, but we are not the big winners. The big winners here are the baby boomers. That’s because they have their name against some 80% of the value in all pension funds and insurance policies.

And if the banks had gone down, that’s who holds their debt and much of their equity. Bottom line, had the banks gone down, no insurance product would be worth a penny more than the paper it’s printed on. So basically, the 2008 bailout sacrificed business, i.e. our generation, but saved our parents. The US bailout was intergenerational transfer, pure and simple. Now, our parents did not have enough kids.