Bailout fever grips investors – Again…
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The monetary union problems of the EU are coming to the fore again.
This time its Ireland and not Greece - thank goodness the problems are staying with the smaller countries.
What strikes me as odd is the bailout mentality investors and the media seem to cling to.
I cannot agree more with Gonzalo Lira.
In his excellent blog post The Tidal Forces Ripping Europe Apart he says (emphasis mine):
"I’m with the journalist Wolfgang Münchau, who very accurately pinpoints the moment when the Irish government decided to fully back its banks—September 30, 2008—as “the most catastrophic political decision taken in post-War Europe.” As Münchau points out, it wasn’t that just the Irish decided to fully back their insolvent banks—their decision obliged all the European governments to back their insolvent banks too.
Like their American counterparts, the Eurozone bureaucrats lacked the political will to implement the Sweden ‘92 solution: Nationalize the insolvent banks, liquidate the shareholders, give buzzcuts to all the bank bondholders, and clean up the banks’ balance sheets of all the crap debt, before sending them back out into the world, smaller but healthier.
Instead—for perverse political reasons and blinkered short-term-ism—the Irish and then the rest of the Eurozone governments took up as their own the burden of the insolvent European banks."
What I also found odd that the financial media had a problem with German Chancellor Angela Merkel’s comment that private investors should also partake in the bailout of over indebted countries.
What I wonder is where did the media and investors get the idea that they should be bailed out when a country defaults?
If investors bought bonds of an over indebted country - for the high interest rate - and the country can’t repay its debt, bond investors must take the pain.
They invested, got the return but also took the risk of default.
I firmly believe in future bailouts the pain must be spread to everyone involved.
I can't help but think the people screaming the loudest for a bailout at no cost to them are just talking their book (they are invested for the yield but do not want to take the pain).
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