Playing Make-Believe With Greece

Operating under the assumption that their economy is “too big to fail,” Greeks anticipate an infusion of new loans and are in no hurry to embrace austerity. Despite their role in failing to regulate the excessive lending, central bankers resist accountability for the crisis in Greece. Floyd Norris of the New York Times compares central and commercial bankers: Both loaned funds without adequately assessing whether repayment was feasible, yet central bankers have greater leeway to patch problems and print new currency, single-mindedly expecting economic conditions to improve. Refusing to acknowledge that some problematic loans are beyond repair could continue to be a drag on the global economy. Bailouts create moral hazard, reducing accountability for risk-taking, Norris suggests, and delays in acknowledging difficulties allow bankers to collect bonuses and the savvy to shift their funds. Bailouts and temporary repairs from central banks spread pain far and wide while minimizing the suffering among irresponsible borrowers and lenders. – YaleGlobal