Why There Was No Irish Bail-In.

I wasn't impressed with the EU's rescue of Ireland -- it simply doesn't share enough of the costs with the private-sector lenders, putting all the (unsustainable) financial pressure on Irish taxpayers. Matt Yglesias has a good post on the politics behind this. Basically, Germany and France set the tone for the EU's monetary policy and are very happy to blame Ireland first -- even though their bankers made many of the bad loans now dragging down the Celts' financial system (German banks are owed $139 billion by Ireland, for instance). When the EU bails out Ireland -- and Irish citizens will pay them back for their loans -- they're bailing out their own banks, who will take little to no responsibility for the failure of their underwriting.

One simple lesson of the financial crisis still hasn't been fully appreciated: Creditors need to take some share of responsibility when a loan fails. Understanding this could make our problems in the housing markets, the challenges of "too big to fail," and the specter of further sovereign-debt crises all much more manageable.

-- Tim Fernholz

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