Next stop, Portugal?

Simon Johnson and Peter Boone have some interesting things to say, thinking through the implications of the recent aid package to Greece (Baseline Scenario). They basically see the incentives firmly in favor of moral hazard throughout the Euro zone... nobody will want to tighten after the EU underwrote Greek profligacy (and after the spineless ECB decided to take Greek bonds as collateral no matter what their quality). Funny thing is, where is the rally in bond prices? After a brief pop, Greek bonds have been trading down again. Financial markets, as we all know, love a good bailout. Now that the EU has finally committed to rescuing the irresponsible, what is there to worry about?

Simon Johnson on Colbert Nation

A year ago, Simon Johnson, an MIT professor and former IMF chief economist was in Barcelona telling ITFD students how a seemingly small problem in US mortgages transformed into a gozilla-style financial crisis. He has now written a book (with James Kwak) called 13 bankers, which is a splendid if rather scary read. Bottom line - if we don't take the big banks apart, the US is in serious danger of becoming a banana republic run by the princes of Wall Street, and the next financial crisis will make this one look like a small hickup. Simon was recently on Colbert Nation explaining it all.