Can anyone really know? It all depends on what mistakes the Policy Makers (Masters of the Universe) will make in saving institutions (the bondholders) or countries that are not solvent. By the way, if a bank is insolvent its shareholders and bondholders should not be rescued with Public money. Liquidating the assets and liabilities should provide the funds necessary to save the depositors and customers, and in some cases some bondholders (with a haircut). That's the nature of risk taking, whoever takes the risk gets the rewards and the eventual losses, but making bondholders whole through a Pubilc subsidy is a terrible allocation of capital and further distorts future allocations of capital.
Supporting virtuous, adequately capitalized institutions that have temporary liquidity problems (not a solvency crisis) via collateralized loans at appropriately high interest rates is necessary and serves the public good. Bail outs based on fear and moral hazard resolve nothing and postpone the inevitable. Many thought that the programs created after the default of Lehman would have solved our malinvestment problem, yet here we are again, failing to address the underlying cause of the illness: too much debt, private and public, and the impossibility respecting all our obligations.
Dexia, Greece, etc.are nothing new. In economic and financial market history there have always been "failures" caused by mis-management and mistakes in risk taking. The policy response (or better yet the lack of a repsonse) during the "failure phase" can provide space for an appropriate and effective policy response during the restructuring or reconstruction phase.
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