Back in 2009, there was a lot of talk about the “moral hazard” of bailing out big financial institutions.  The concern was that, once bailed out, the banks would learn that no matter what happened the Federal Reserve and government would be there to cover all of their bad loans – and thus make more.   In short, providing insurance for default makes it more likely that it will occur.

The term is something like a pop psychology term for the system of socialized risk that defines our entire financial system.

With the benefit of hindsight we can now ask whether or not the bad loans stopped after the big bailouts of 2008.  Did large financial institutions change their behavior and start to behave?  The answer, increasingly, appears to be no, there has been no substantial change in lending behavior since the bailout.  The “moral hazard” appears to be very real – big bets on big risks have continued without much change.  And that’s not only why there is a new crisis but also why serious policy changes must take place.

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Europe has come to understand that what is at stake right now is not just the economies of a few member nations, but the future of European Union itself.  The cornerstone of that union is the Euro, the single currency that has made close cooperation even tighter.  But in order to save that currency, there is little that can be done short of the member nations drawing much closer together.  That, and risk killing off the Euro in order to save it.

The growing realization is that they will have to print a lot more Euros to get out of this.

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