Let’s start the new year with a quote from April of 2010.

If you do wish to break or limit the power of the major banks, running a balanced budget is probably the most important step we could take.

And, more recently, from Brad DeLong,

There are two sustainable ways to make money in finance: find people with risks that need to be carried and match them with people with unused risk-bearing capacity, or find people with such risks and match them with people who are clueless but who have money.

This reminded me of the 1980s, when CMO residuals were very risky assets and they were matched with S&Ls who had money and were clueless. Taxpayers were the ultimate clueless suppliers of money, as has been the case ever since. To understand why banks have to be bailed out, go back to Tyler’s quote.