Well, they could print money, I suppose, but that won't work very well.  Certainly I think what we've seen over the last two years -- and especially now with Greece -- suggests we need a much more stable set of mechanisms in place, especially as we're dealing with countries rather than simply banks.

What worries me about the Greece issue more than anything is the fact that it sounds so much like what happened with Merrill and other banks.  "We have to step in here or AIG will go down."  So AIG goes down anyway.  Now it's "We have to step in here or Portugal and Spain will go down."

Some sort of managed default paired with reforms to boost tax collections and so on strikes me as a lot better than the EU simply shoveling money at the problem, but then the obvious point has to be made: It's not about Greece and Greeks and what's right by them, and how to help them rebuild their system in a sustainable manner, for the countries doing the bailing out here.  It's about those countries protecting their banks or themselves (depending on the situation they're in).

Be nice to America. Or we'll bring democracy to your country.

it raises the question of why governments are having to care what the fucking bond markets think

All pols drink the pro-City Kool Aid long before they get elected. Blair and brown more or less had to go and kiss bottom all over the City before 97, Brown flew over to the US and read big books with long words like endogenous so that he could show off how he could speaka da lingo.

It's an inverse relationship. the worse the City gets treated, the better for the wider economy.

keep to the Fen Causeway

This is all true, but it raises the question of why governments are having to care what the fucking bond markets think.

I am on the record suggesting to replace governments with roomfulls of monkeys at Bloomberg terminals.

The brainless should not be in banking -- Willem Buiter

ThatBritGuy:

This is all true, but it raises the question of why governments are having to care what the fucking bond markets think.

Looks like not all do.

In accordance with the increase in the amount of outright purchases of Japanese government bonds (from 16.8 trillion yen per year to 21.6 trillion yen per year) decided by the Policy Board of the Bank of Japan at the Monetary Policy Meeting held today, the amounts of Japanese government bonds to be purchased from specific brackets classified by bond type and residual maturity, shall be changed as follows (effective from the Bank's next purchase).

ThatBritGuy:

why governments are having to care what the fucking bond markets think.

reversing that gem, you get 'why bond markets are having to care what the fucking governments think.'

cute...

your phrase should be carved in stone on the lintel of every bank and lending society, brokerage house and pension fund management building.

it's an insult to intelligence to have 'investors' cream off fat percentages of tax money with inside information and pirate ethics, get stinking rich and then have gvts do the dirty work of smashing dissident heads in when they're asked to follow austerity measures that leave them worse off than an often miserable 'before'.

the predatory finance industry needs to be turned inside out and wrung till it's dry.

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

Is there really no way for governments to organise a more equitable and independent form of self- or cross-funding?

In a scenario of structural trade imbalances between nominally sovereign (and therefore fiscally independent) states?

No.

There is nothing that will prevent a default event if you run persistent structural trade deficits without running equally persistent redistribution programmes the other way. Full stop.

The solution is to not run persistent structural trade deficits without having a unified fiscal policy that, in the aggregate, redistributes away the imbalances.

The corollary to not running persistent structural trade deficits without countervailing redistribution is to not run persistent structural trade surpluses without countervailing redistribution. Cue Keynes and his Bancor.

It is more than a little sad that the economic conventional wisdom has actually managed to get dumber over the past seventy years...

- Jake

Friends come and go. Enemies accumulate.