- Greece Is Not Too Big To Fail

Although I'm sure it seems so to many people, Greece is not actually too big to fail. On the contrary, I think it's just about the right size to fail.

The people who run governments always want the same thing; whatever will keep them in power for a little longer, and to hell with what the people want. But if take a look at the EU bailout package from the perspective of the European citizen, what we see is a very different view than the one held by their leaders. The Germans don't want to give Greece a bailout, and the Greeks don't want to take it. Their reasons for feeling that way may be prudent or may be foolish, but it's clearly how they feel. So why are we going through the charade of pretending otherwise? Because it's what the politicians need to be able to stay at the helm a little longer.

If we want to end this continuing crisis in the capital markets, then we need to let Greece fail. The banks will take their write downs, the Spanish and Italian socialists will be frightened into behaving like adults, and the EU - ex Greece will be able to begin the long slow painful slog forward. The EU needs to amputate the limb to save the body. They need Greece to be their Lehman Brothers.

Spain on the other hand probably is too big to fail if the European union want's to endure. And by letting Greece fail, the moral hazard of rewarding bad behavior will be greatly diminished. The other at-risk social welfare states will all be frightened into prudent fiscal behavior because they may be next. It's a tough medicine, but at this point I think it's necessary. It's the only thing that will give the EU enough gravitas on the issue to be believed by the markets.

Let the Greeks have their dramatically devalued Drachma and the Albanian living standard that will come with it. Let them cope with a credit rating in the C- range. It's what their civil servants and labor unions are demanding. And sometimes the only way to teach a child is to let them learn for themselves. We have to let them stick their finger in the socket, and hope for the best.