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From a CNBC interview with Warren Buffet:

QUICK: When you look at the situation in Greece right now and what’s happening with the trouble they’ve gotten into, do you believe that contagion spreads to not only other EU nations, but potentially other states here in the United States? Is that a huge worry for you?

BUFFETT: There’s a huge incentive for the EU to handle something like Greece and, of course, that’s what you’re seeing now. I mean, it isn’t–it isn’t because the rest of–the other 15 countries in the EU have suddenly developed this great affinity for Greeks. They just–they know the consequences of, you know, if A is going to lead to B and you can’t stand B, solve A. And that is essentially the situation. That’s what we went through a year and a half ago, you know, after–when we stepped in and guaranteed money market funds and commercial paper and all of those things. We saw a run on the country developing, and, believe me, it was developing. And no one has to lend money to country A or country B or country C. And if they lose money with country A they’re going to get more worried about country B and country C just like the same experience we had with financial institutions in the fall of 2008. The time to stop runs is early on.

QUICK: But do you think that this is something that could happen here in the United States, if you look at California or New York, if you start looking at some of the states that have very large financial problems?

BUFFETT: Yeah, and they can’t print money.

QUICK: They can’t.

BUFFETT: No, no. What they can do is one of three things. They can cut expenses, they can raise income, or they can go to Washington eventually.

QUICK: And you think Washington would cover all of those problems?

BUFFETT: It would be very tough if you’re in Congress and they say, `Well, you bailed out General Motors, and you did this and that. And are you going to say, “People in the largest state in the union or whatever it is, that we’re not going to take care of you? I mean, the political problem would be huge. But there’s no question that states and municipalities the fiscal–the financial situation for them has deteriorated dramatically. We did not write any municipal insurance to speak of in 2009. The risk got higher and the premiums got lower and that just–it made it a dumb sort of thing to do in our view.

QUICK: Tying this back to Europe and if Europe and Germany do step in and provide for Greece, as it looks like they very–may very well do at this point…

BUFFETT: Almost have to, yeah.

This type of argument is based purely on a mechanistic systems analysis, disregarding the fact that humans make up the system. It's difficult to change people's bad behavior unless they suffer the consequences, or at the very least, know there will be consequences, from their bad behavior. In short, the argument ignores moral hazard.

If the EU bails out Greece (like they're trying to do), there's no incentive for Portugal's leaders to get their act together, nor Ireland's or Spain's or France's. Nor our masters here in the land of the free. The can is just kicked down the road. And that's why the modern day entitlement-fiat state will come crashing down everywhere in the world. Foolishness and vice are being subsidized.

Sometimes I wish I had a hot tub time machine so I could go back to 1998 and prevent the Long Term Capital Management bailout by distracting the key players with booze and women. How life might be different.

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There is less of a moral hazard problem when onerous conditions are attached to bailouts.
I get the impression that the experience for a government in being bailed out by the IMF is not nearly as pleasant as was the experience for LTCM in being bailed out by the Fed.