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Reader comment on: Greek Bailout Deal
Submitted by ben (United States), May 10, 2010 11:30
It seems like the similarities with the US bailout are plentiful. Instead of "Greece, Portugal and Spain," we had subprime borrowers. In place of Deutchebank we had Citi (although Deutchebank was in on the game here as well). Futureofcapitalism was of the opinion that we should have run the experiment and let those who were overleveraged, fail. The thinking was that others would fill the space and the financial system wouldn't experience the kind of catastrophic fail that was being by predicted by economists of all stripes. By the same logic, we should let Greece fail? If Greece defaulted on its debts, what would happen? If the pundits are to be believed, Portugal and Spain would follow quickly, the major banks that underwrote the debt would fail as well, triggering a worldwide banking panic, putting us right back in 2008, despite all the efforts since then to get the markets functioning again.
If futureofcapitalism thinks Greece should be allowed to fail so that other countries (and lenders) don't make the same mistake, what will the consequences of this be? Revolution in Greece? Communism on the march? Kind of frightening, and fascinating, to think about.
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The Future of Capitalism replies:
I think "fail" is not a good word to describe what would happen to Greece. What would happen would be they'd try to restructure their debts with their creditors for some perecentage payment on the dollar. That might make it more expensive for other governments to borrow, and help put the brakes on the expansion of government spending that has been fueled in part by money seeking the "safety" of sovereign debt.
The pundits saying if we don't bailout there will be a panic are like the people who said if we don't invade Iraq there will be a nuclear attack on America. They could be right, but some skepticism is called for.
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