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It would have been a real scandal if the president of NYFRB took it upon himself to decide to plunge Europe into the crisis that they seem to have only delayed until now.
While I don't dispute the rest of your analysis, I feel the need to reiterate that keeping insolvent private banks alive is not helping. Insolvent private banks should be separated from their clearing functions posthaste, and then have the carcass put through ordinary bankruptcy proceedings.
Now, it may well be that it would have been irresponsible to pull the plug on a large number of insolvent European banks in the context of a European federal financial regulator and market maker that is studiously refusing to actually perform either of these jobs. In which case the blame is shared by the witless gold bugs at the ECB.
Friends come and go. Enemies accumulate.
Keeping insolvent private banks alive is actively contributing to the crisis as well as actively ensuring the crisis persists. The choices are:
Given the quality of decision-making coming out of the Bundesbank et al, I am not convinced that the European policymakers would have been able to salvage a major banking blowup that happened on someone else's time table. Hell, they may not even be able to handle a blowup that happens on their own time table, but at least then they'd have a sporting chance.
I grant there is a emotional side of equal (?) weight going counter to the pure economic analysis.
She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre
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