My favorite explanation of the financial conditions that led to the bailout, from Choire Sicha:
So like, if you loaned a bunch of people money, under the mistaken impression that Michael Jackson's back catalogue would always get more expensive, and then Michael Jackson got some weird face surgery again and no one wanted his albums any more, well then they won't get more expensive and all those loans are pretty worthless—and plus you loaned people money for mp3s who really didn't have the money to pay it back anyhow!
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