[fifnir]

NY private banks lend money to Mississippi banks. At some later point, the global market crashes and NY ""suddenly discovers"" that Mississippi officials lied about the state's finances. NY now wants their money back in the middle of a world-wide crisis. Mississippi banks can't pay.

Should we force the (next generation of) citizens of Mississippi (who didn't personally lie about anything) to pay all this debt for the next 50 years?

[occamrazor]

US states are forbidden (with some exceptions and loopholes) from issuing debt. I would guess that one of the main reasons why this limitation has never been lifted is exactly to avoid a situation like the one you describe. The Puerto Rico debt crisis has shown that this is not a purely theoretical concern.

[paxswill]

Actually curious on this, my knowledge of financial theory is sorely lacking. To my understanding, states can (and do) issue debt through municipal bonds. Is this one of those “exceptions and loopholes”? My understanding of the Puerto Rican debt crisis is that their bonds were made more attractive because income from their bonds is tax exempt by federal law from most US income taxes. By (artificially) increasing the attractiveness of those bonds PR was able to borrow more money than they would otherwise.

[anovikov]

Well, to me the answer is "yes of course" at least as long as these Mississippi officials were elected on a state level, or appointed by those elected on state level - not by Washington.

[breakyerself]

They shouldn't and that's exactly why states are allowed to declare bankruptcy and why Puerto Rico should be allowed to declare bankruptcy. States in the EU probably should be able to also.

[occamrazor]

Greece could default, but it was not clear what would have happened to their central bank, and if a default would have pushed Greece out of the Eurozone.

Due to these uncertainties, and undoubtedly also to pressure from the rest of the EU, Greece decided instead to renegotiate their debt with the Trojka.

[atmosx]

Not really. Greece was never allowed to default properly. The referendum George Papandreou alluded to at the time, is a prime example of what I'm saying: Greece defaulting might drive Italian bond prices through the roof at that point the monetary union would be destroyed overnight.

Now that the debt has been turned from public to private, it might be easier to handle as a situation, but I doubt the EU is able to handle such a crisis gracefully.

Greece is stuck to a never-ending extend and pretend program which will effectively kill the Greek economy in the 21st century.

[antientropic]

Greece is a sovereign country. It could have defaulted if it really wanted to. Maybe it would have required an exit from the Euro, but that would have been its choice. That they considered this worse than the alternative was also their choice.

[fifnir]

"Well it's their choice to be uninsured, if they wanted medical insurance there's a lot of options in the market" guyputtingonclownmakeup.jpg

[atmosx]

> Greece is a sovereign country.

:-)

[breakyerself]

I think an orderly bankruptcy process would have been preferable to either of those options. If I was in charge of Greece at the time I would have left the EU over it. I'm amazed Britain left and Greece stayed.