Everyone's making sacrifices

ABC News brings us tragic tales of life in the financial sector:

“A lot of those people will have to sell their homes, they’re going to cut back on the private jets and the vacations. They may even have to take their kids out of private school,” said Frank. “It’s a total reworking of their lifestyle.” He added that it’s going to be no easy task. “It’s going to be very hard psychologically for these people,” Frank said. “I talked to one guy who had to give up his private jet recently. And he said of all the trials in his life, giving that up was the hardest thing he’s ever done.”

I’m not a financial expert by any stretch of the imagination. The way I understand it, lots of financial institutions spent years loaning out money in really risky (but lucrative) ways. To prevent their investors from freaking out, they figured out creative ways to hide the riskiness. Everyone knew this was going on, but it meant more profits so no one was willing to look too close. After years of this, it was institutionalized: if the house of cards fell, it wouldn’t be just one institution but loads of them all taking the fall.

Again, as I understand it, that’s what we’re experiencing now. Unless I’m totally mistaken, the problem is the systemic nature of the failure: all of the financial institutions were doing it, even the huge ones that have been thought of as ‘rock solid’ for decades, and if they collapse the whole economic structure goes topsy-turvy panic-mode.

Can someone knowledgeable about these things clue me in, or is the government essentially planning a $700,000,000 $700,000,000,000 bailout of people who got rich by making too-risky investments with other peoples’ money?

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