The IMF Should Not Go Into Greece Without Haircuts on the Debt

Right now, a lot of Americans are laughing at the Germans because they really don't want to lend to Greece but are being forced to do so this weekend on terms that are likely to bite them in the ass later on. It's an amusing state of Schadenfreude since the Germans did the same thing to us 3 years ago.

But when the IMF goes in with $160 billion the last laugh may be on us. Depending on the final IMF package, this could be 80 billion of U.S. taxpayer money. Real simple, force the banks that lent to Greece to take a haircut as a part of the bailout. Then move on. It's not complicated and we've been doing it for hundreds of years but have forgotten it of late.

The problem is not so much Greece, but the countries that are likely to come after...it's Spain, Portugal, Ireland and perhaps even Italy.

At this point it would be useful to set a precedent for haircuts on debt again, starting with Greece. It might make austerity measures in a Greece a little more palatable if the banks take some pain here too. It seems like common sense to me.

In the U.S.crisis we followed the British model after Gordon Brown bailed out UK banks with no haircut on their debt. Where the hell did this idea get into the mix that lenders should not take haircuts? When did banks become these ridiculous protected monstrosities of public finance? This trend that Brown started and Paulson carried on is really bad for the financial system.

Take the haircut, cut spending, shrink the bad bank, move on. Nobody is reinventing the wheel here. Again we have French banks that have lent too much money to people that had no business borrowing it and getting bailed out again. If they get no haircuts they'll keep doing bad loans.

Even in the US financial reform bill, the Volker rule is getting no traction even though moving prop trading out of publicly backed entities would make the financial systems much safer for everyone and rebuild some lost confidence. Instead they want to use capital controls which really are inadequate for these complicated instruments. Sure folly and a certain path to the same mistakes.

Just separate the damn things out, even Goldman knows the world would be a better place. Take the partnerships PRIVATE and they can do all the trading they want.