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Comment by rkischuk | Hacker News Reader

I'm not sure how anyone reads these articles without reaching the obvious conclusion that we've achieved abject fiscal insanity.

"...the ECB. As the lender of last resort, it must do more to save the banks by offering unlimited liquidity for longer duration against a broader range of collateral." "And since conditions are tightest in the peripheral [failing] economies, the ECB will have to buy their bonds disproportionately."

Modern economics somehow deny every amount of basic common sense. The only way to fix irresponsibility is apparently to reward it and encourage more. Nobody ever thinks about how to compartmentalize risk and failure, how to reduce the size and influence of financial institutions that threaten economic stability. I'm sure someone from Europe can better fill in the gaps on who stands to profit here and who's pulling the strings.

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When you are in a crisis situation, you do what you need to do to fix the problem, then you go about making sure it doesn't happen again. There is a solution that will prevent the eurozone from collapsing and triggering a world-wide recession (depression?) that will make 2008 look like peanuts: print money. The crisis could be averted tomorrow, if Germany would just go along with ECB quantitative easing. Then we can focus on austerity and balanced budgets without brinkmanship. That's what this article is about.

That's the problem, though. I am no economist, but I have the impression that these repeated "rescue scenarios" just end up causing more and more irresponsible behavior, all the way from when it all started with Long Term Capital Management.

Can you point out a single time where intervention to prevent a disaster after irresponsible money management has eventually resulted in more responsible economic behavior?

In the end, something has to give.

That's exactly what Economist, Bloomberg and other mainstream media want you to believe right now. In reality more money printing only will get you in a greater trouble. The way out of that vicious circle is to spend only what you have to and bootstrap yourself with a hard work.

The issue comes down to a few factors.

1) The ECB has adamantly maintained that no banks will be allowed to fail. I assume this is because they are worried about contagion. 2) Germany, France and UK banks lent a lot of money to the PIGS. 3) In order to avoid bailing out their own banks (again), Germany and France encouraged the PIGS to take money from them (at high rates of interest) in order to recapitalise the banks of france and germany (and the UK, but they've been less active here).

It was total real politik, but unfortunately it hasn't worked, and the markets have now copped that it isn't going to work. Hence the continuing crisis.

Germany also have little incentive to fix the crisis, as they are benefiting disproportionately.

Ireland is a special case, as the reason Ireland had to ask for a bailout is the corrupt former government guarenteed a cowboy bank that was funding their previous elections.

I agree with you that its total insanity, but no-one appears to be able to say stop.

To "compartmentalize risk and failure" requires regulation, which is anathema to many free marketeers. And if regulation goes too far you get stagnation. Damned if you do, damned if you don't.

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