In the NYT:
Wall Street tactics akin to the ones that fostered subprime mortgages in America have worsened the financial crisis shaking Greece and undermining the euro by enabling European governments to hide their mounting debts.
... The bankers, led by Goldman’s president, Gary D. Cohn, held out a financing instrument that would have pushed debt from Greece’s health care system far into the future, much as when strapped homeowners take out second mortgages to pay off their credit cards.
It had worked before. In 2001, just after Greece was admitted to Europe’s monetary union, Goldman helped the government quietly borrow billions, people familiar with the transaction said. That deal, hidden from public view because it was treated as a currency trade rather than a loan, helped Athens to meet Europe’s deficit rules while continuing to spend beyond its means.
1. The free market response to financial innovation might go something like this: If there is a demand for the product we should let the market decide whether the product survives instead of trying to regulate the product.
2. The free market response to regulation (of deficits) might be: Even governments evade regulations, so given free choice any attempt to even regulate regulators would have regulators evading regulations so transparency and market forces are the key to self-policing.
What a tangled web we weave, when we first practise to deceive!
If an alcoholic demands more liquor do we let market forces decide?