In Europe, Debt Recklessness Wins Again

Bill Fleckenstein MSN Money May 17, 2010

What sort of example is bailed-out Greece setting for the Continent? A strapped Ireland looks on, wondering whether it would be better if every country defaulted.

Only somebody newly roused from a deep slumber would not know that the European Union and European Central Bank had unveiled a plan recently to shock markets into believing that the euro will survive, via a roughly $1 trillion rescue package.

How did Greece get into debt trouble?

They can't have it all ways. Thus, it's quite likely we will see very little sterilization and a whole bunch of money printing, which is likely why the rally in the euro as a currency fizzled as fast as it did.Bittersweet are the uses of austerity As to what this all means for Europe and, by extension, the U.S., my oft-cited source the "Lord of the Dark Matter" quoted Brendan O'Connor, who on May 9 wrote a brilliant rant that appeared on the front page of Ireland's Sunday Independent:

"The Greeks ruined it for the rest of us. You would have to imagine that that'll be the end of the bailouts. The Germans only barely gave it to the Greeks. And if they do ever consider a bailout again, we seem to be a few down the list anyway, so by the time they've finished with Spain and Portugal you can be sure there'll be no appetite to bail us out. Msn.Video.createWidget('PlayerAd1Container', 'PlayerAd', 304, 314, {"configCsid": "MSNmoney", "configName": "player-money-4x3-articles-inline", "player.vcq": "videoByUuids.aspx?uuids=8c1a7616-d0fb-45e3-87e1-c3a4f394da51,dc7896ee-7925-47a7-a3f1-42f575981b17,efc4a6d0-17b9-4fd0-9724-caf3bafb26f2,9f6db5a3-27a7-43f8-87a3-d6e272748f69,f88c30dd-1032-4119-92db-d9604121d06f,55c0c5b5-b463-40c9-a27e-6eb42555ca7e,c27a29a2-e267-489a-829d-6375691637e1,9ad22bc1-dada-48a6-851a-5c1893ca184a,762c249a-afe6-4cce-85fd-f507847398a5,f828a090-e826-4137-9fc7-8d1940218dfd,9713cad3-811b-436d-aee2-19d7b98645de,7e8cc2f4-bf1f-4c1f-9cda-d2a9cec3e42a", "player.fr": "iv2_en-us_money_article_Investing-ContrarianChronicles-inline"}, 'PlayerAd1');Msn.Video.createWidget('Gallery4Container', 'Gallery', 304, 150, {"configCsid": "MSNmoney", "configName": "gallery-money-articles", "gallery.linkbackLocation": "bottom_left", "gallery.numColsGrid": "3", "gallery.categoryRequests": "videoByUuids.aspx?uuids=8c1a7616-d0fb-45e3-87e1-c3a4f394da51,dc7896ee-7925-47a7-a3f1-42f575981b17,efc4a6d0-17b9-4fd0-9724-caf3bafb26f2,9f6db5a3-27a7-43f8-87a3-d6e272748f69,f88c30dd-1032-4119-92db-d9604121d06f,55c0c5b5-b463-40c9-a27e-6eb42555ca7e,c27a29a2-e267-489a-829d-6375691637e1,9ad22bc1-dada-48a6-851a-5c1893ca184a,762c249a-afe6-4cce-85fd-f507847398a5,f828a090-e826-4137-9fc7-8d1940218dfd,9713cad3-811b-436d-aee2-19d7b98645de,7e8cc2f4-bf1f-4c1f-9cda-d2a9cec3e42a;videoByTag.aspx%3Ftag%3Dmoney_dispatch%26ns%3DMSNmoney_Gallery%26mk%3Dus%26vs%3D1;videoByTag.aspx%3Ftag%3Dbest%2520of%2520money%26ns%3DMSNmoney_Gallery%26mk%3Dus%26vs%3D1"}, 'Gallery4');"In retrospect, we were probably too good, too eager to please.

"We should have run the place into the ground and been first on the list for a bailout.

"But no, we took the pain, because we're Irish and we're drawn to the pain, and we'd rather inflict it on ourselves than give anyone else the satisfaction of saying they inflicted it on us. . . .

"Of course, there is method to the Greek madness too. Many reports pointed out that the reason the Greeks are angry is because 'they do not have a culture of balancing the books in Greece.' Or, as one eminent economist put it: 'There's plenty of money in the world.' And the Greeks know this. We are the good sibling in the family, doing the right thing, while Greece does what it wants, secure in the knowledge that the family will always be there to sort them out.

"If there is plenty of money in the world, it has to make you wonder. It gradually became apparent during the week that any bailouts of countries are actually bailouts of banks, German banks more often than not.

"And given that there is plenty of money in the world, and yet everybody is up to their neck in debt, there is something not adding up, and maybe it's time to start again.

"Maybe it's time for not just us to default, but for everyone to default. They (whoever 'they' are) will get over it soon enough and they'll give us more money to buy stuff from them.

"It would be a delinquent thing to do, yes. But if we've learnt anything from all this, and we haven't really, it's that being good gets you nowhere."

You can read the whole rant on the front page here (.pdf file).

Continued: Recklessness is so much more funMore from MSN Money

Euro trouble won't end with Greece

Greece's debt woes test EU unity

Eurotrashed: It's not just Greece

Goldman-deal gamblers knew the score

It's time to dump foreign-stock funds

1 | 2 | next >

Rate this Article Click on one of the stars below to rate this article from 1 (lowest) to 5 (highest). LowThank you for rating.UGR('ratCntrl')High var avgRating=0;avgRating=8.688742; if(avgRating!=0){avgRating=avgRating/2;avgRating=Math.round(avgRating*100)/100;var sDisplayText="Average rating: " + avgRating + " from ";var usersCount=151;sDisplayText = sDisplayText + usersCount;if (usersCount==1)sDisplayText=sDisplayText + " user";else sDisplayText=sDisplayText + " users";avgRatingElem=document.getElementById("averageRating");avgRatingElem.innerText=sDisplayText;} View all top-rated articlesE-mail us your comments on this article Discuss in a message board MSN Money InsightNew Investor CenterMarket DispatchesJubak's JournalTop Stocks blogCompany FocusContrarian ChroniclesSmart Spending blogFast AnswersDecision CentersStart InvestingMutual FundsFind Hot StocksSimple StrategiesPower ToolsInvesting for IncomeReal Estate InvestingRecent Contrarian Chronicles ArticlesEuro trouble won't end with Greece 05/07/2010Greece's debt woes test EU unity 04/30/2010Goldman-deal gamblers knew the score 04/23/2010More . . .Contrarian ChroniclesAbout Contrarian ChroniclesLearn the Contrarian Chronicles lingoSubscribe to Market Rap on Fleckenstein CapitalFund data provided by Morningstar, Inc. © 2009. All rights reserved.StockScouter data provided by Gradient Analytics, Inc.Quotes supplied by Interactive Data.MSN Money's editorial goal is to provide a forum for personal finance and investment ideas. Our articles, columns, message board posts and other features should not be construed as investment advice, nor does their appearance imply an endorsement by Microsoft of any specific security or trading strategy. An investor's best course of action must be based on individual circumstances.Msn.Video.createWidget('Gallery8Container', 'Gallery', 500, 230, {"configCsid": "MSNmoney", "configName": "gallery-money-article-site-wide"}, 'Gallery8');msft.msn._ic.cid='pmrb7tdhm7mcb8vvcghmvcxdnf7w4jkc';msft.msn._ic.pst=false;msft.msn._ic.pgn=1; Join the discussion!Add a commentShow commentsSort by:Newest firstOldest first_uc2f12('iucGo');1 - 6 of 6PreviousNextAndy from Brooklyn #1Friday, May 14, 2010 9:26:09 PM The entire financial market around the world is deleveraging, which by the way is exactly what needs to happen. The credit system is broken here and through out the world and no one on the planet at this time has a clue how to fix it......,The POWERS THAT BE...the World Bank,the International Monetary Fund,EU,the FED ...you know the usual suspects.....have lost control of their controlled game....They let their greed to make more money get the best of them.....they lost control of the debt limit they set for each,,,,,,each country taking a bigger piece of pie until the pie was gone.....now it's Bailout Baby Bailout,,,,,and as the dominoes fall (looks like the PIIGS first and then the rest)we will learn of a new world currency......and i believe it will not be based on any country's gold reserve....but rather ....the least debt (and since we all owe) the better off........if it is to be commodity based gold will be the least attractive and silver and copper more so because of price.....either way... the world financial situation and monetary policy is changing foreverReplyReport Abusewordfrominside #2Saturday, May 15, 2010 11:19:03 AM

The article brings up an interesting situation: what if the whole world defaulted? Who is going to come around and collect when everyone is broke?

ReplyReport AbuseMarkPM #3Saturday, May 15, 2010 5:42:44 PMThere is a far more interesting truth, there are more billionaires than ever before in history. They've already been paid with the debt too freely given by the banks and the Fed which fed the inspirational culture of 'living large'. A perfect storm.When investors can make large sums of money with OPM without risk then the saver loses. All the governments are doing is keeping the wealthy that way, rather than recalling their wealth with hyperinflation or stagflation. Hyperinflation will come eventually to the masses, but by then the billionaires will have fled to another asset class such as gold, copper or section 8 housing complexes. In the economy of scale model, the leverage points has tipped too far in favor of those with capital the same way it was tipped too far in favor of those with leverage before. Look at the private VC's, they get far more in a deal than ever before, with far less risk. They can easily make multiples more per year since the banks have no ability or desire to lend to an idea. And the patent trolls in Silicon Valley sue everyone innovative because our government couldn't decide on patent law that was affordable and equitable. So we all end up pushing bits of information around that have no actual value except to attorneys and vulture capitalists.Want to fix things? Give people a chance and start a movement to create free patents and open source patents. Then the brainiacs that we have in spades in this country won't spend 90% of their time searching for money from VC so they can make certain their Intellectual Property doesn't infringe on the behemoths of industry and the patent trolls. They could truly do boot strapping and family tapping and create innovative products the whole world could use rather than having all those intelligent people ending up creating sophisticated new ways to place bets on outcomes faster.Free speech is great. Free knowledge transfer would be even better. Suing people for a two finger gesture on a phone should lead to a one finger gesture from our courts pointed directly at the idiot who approved the patent to begin with. Thanks if you read the whole thing. ReplyReport Abusehanongcha #4Monday, May 17, 2010 1:27:48 AMOccasionally your body shoots you the equivalent of a check-engine light -- a weird spasm, say, or a sudden, piercing chest pain. Your brain races.Flight + Hotel + Car Hotel + Car. or Last Minute Packages Now its your day to get 85% discount on Hotels 4-5 Star Hotels At 2-3 Star Prices---Up To 80% Discount +120,000 Hotels Worldwide---Up To 70% Off Hotels Instant Confirmation, Book NowReplyReport AbuseActive RIA #5Monday, May 17, 2010 1:44:05 AM

Good article Bill. Could you please do a brief follow up on how Greece got itself into this terrible mess and which, if any, American financial company or companies helped get them there?

Looking forward to it.

ReplyReport AbusePurevalue #6Monday, May 17, 2010 2:32:29 AM

I believe that we have here a clear case of the Americans trying to tell the Europeans that they have a splinter in their eye while they ignore the beam that sticks in their own eye!

It also clear that the Americans are made to believe that the European rescue package as a result of the Euro crisis is a similar bail out than the US has done. Actually it is not and this is why European countries are taking serious measures to get their finances in better shape. This will cost Europe growth is the American worry but if the USD is going up and the Euro down as a result of all this than guess who will be getting the better export opportunities for the goods and services?

ReplyReport Abuse1 - 6 of 6PreviousNext_ucf13('0'); _iuc2Om1('MSNPortalInlineComments','Initial_Load_Comment_View','http://articles.moneycentral.msn.com/Investing/ContrarianChronicles/in-europe-recklessness-wins-again.aspx?page=2&','en-us');Are you sure you want to delete this comment?Report AbusePlease help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease notify us using the Report abuse form below. We will investigate your report and take appropriate action against offenders. We report all illegal activity to authorities.CategoriesSpam or advertisingChild pornography or exploitationProfanity, vulgarity or obscenityCopyright infringementHarassment or threatOtherAdditional comments(optional)100 character limit To add a comment, pleasesign in/*MSN PrivacyLegalAdvertiseRSSHelpFeedbackSite mapAbout our ads© 2010 Microsoft/*