We’re guessing that a lot of folks share David Rosenberg’s sentiment on this one, that it’s time to ban the bailouts, and forget the idea that a Greece “default” would be tantamount to failure.
BAN THE BAILOUT
First we have governments bailing out banks (and auto companies and
mortgage providers), homeowner debtors, and now we have governments
bailing out governments. When does someone finally say — enough is enough!
Oh no — bank ABC is too big to fail. Company XYZ is too complex to fail. And
now country GRK is too interconnected to fail. Give me a giant break.
Look, Greece is not going to “fail”. They are going to default. There will be a debt
restructuring. And there will be some recovery. Bondholders will take a haircut —
why shouldn’t they? Why should Angela Merkel care if German banks own Greek
bonds? Greece has been in default in its recent 200-year history almost half the
time. So has most of Latin America come to think of it. What about Russia?
So Greece defaults, bondholders who knowingly bought these instruments
knowing the historical record went for the yield and simply do not deserve a
taxpayer-supported bailout of any kind. To actually come to the aid of Greece
(especially after all the accounting gimmickry) would send a signal to investors
that the best way to make money is buy the debt of the most risky and highest
yielding enterprise because there will always be a bailout. Rewarding bad
investment decisions is a huge mistake, in my opinion.
Let Greece default, the world will not come to an end, and whether or not the
country gets a “bailout”, the fiscal drain is going be a pervasive drag on economic
activity for at least the next five years. While there may be contagion risks — same
deal. Investors who bought Club Med bonds with their stretched government
balance sheets in order to stretch for yield don’t deserve to be bailed out either.
Taxpayers unite, wherever you live (because you too support the IMF). These are
solvency issues we are talking about, not liquidity issues. This is about bad
decisions, not market failure.
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