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Comment by yequalsx | Hacker News Reader

I've said this over and over again to Germans that I know and they simply don't believe what you say. They really think that they are bailing out profligate Greeks and that there is no benefit to them. Politically, it isn't feasible for Merkel to come out and say that German banks need to be bailed out. It's much easier to talk about European unity and solidarity as the reason for "bailing" out Greece.

Germans pride themselves on their fiscal restraint. They save and abhor debt in their personal lives. I think it would shock them to know that their banks are close to insolvency because they took German savings and lent the money to Greeks and Portuguese. If the German government were honest about the poor state of their banks then the government would not survive.

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I agree. The simplest way to make this clear is to simply let the Greek banks default (and any other banks for that matter). This will expose the German banks and the German Government will be forced to bail them out. This bailout will be a much easier sell than the current one as it will be clear to the German taxpayer that they are bailing out their own banks who made bad bets out of greed, lack of diligence and just plain ineptitude(just like all the other bankers around the world).

There is this constant argument about "confidence" going around. We must maintain investor confidence etc. There is a limit to that and its much shorter than its usually stretched to. I've seen the same thing in software where management will cover up a systems flaws and press on with new features. In the end it all falls apart and a post mortem always reveals that they should have faced up to the problems sooner. So fk confidence, the whole thing is going to fall apart anyway and the longer we leave it the harder it will be to fix. Let the Greeks default and let the bankers take the hit, replace them with some talented young people (there are plenty) and lets get fixing things now that they are no longer covered up.

German banks are - by a large margin - not the most exposed to Greece. French banks for example are much more exposed to Greek dept. If Greece fails, this will hit German banks, but other banks much more, it might be especially hard for countries with a smaller GDP and a higher bailout/GDP ratio.

As a German taxpayer I don't care whom I bail out.

Funny thing: People talk about Germany, instead of Greece. Sure, bailing out German banks will cost some money, a state breakdown in Greece will cost Greek people much more.

Bailing out the Greeks made some sense when it was seen to be cheaper than bailing out German banks. But as the situation stands it looks like bailing out Greece is throwing good money after bad, and the German banks will have to be bailed out anyway. So from the German perspective the right thing to do would be to let the Greeks go bankrupt.

The total exposure of French banks to Greek debt is larger than the total exposure of German banks to Greek debt, true, but the problem for Germany as a whole is that a specific group of German banks, namely the Landesbanken that fund a large part of German industry, have comparatively large proportions of their holdings in Greek debt.

So the Germans don't have to worry about bailing out Commerzbank or Deutsche bank the way the French are worried about BNP or Credit Agricole, but they do have to worry about what happens if the Bayerische Landesbank can no longer fund Bavarian factories.

One thing I'm somewhat confused about is why a bailout is better than default. In both cases the banks cannot pay back loans so their credit is worthless right? In a bailout the government becomes the bank (through a proxy) but its still the governments credit, not the banks'. So keeping the banks alive, instead of allowing them to default would keep jobs, but wouldn't it be keeping the jobs of people who, for lack of a better term, didn't actually do their job?

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