In The End, It's Always About The Banks

Martin Feldstein, on why the Germans and French might bailout the Greeks:

Why, then, are political leaders in France and Germany trying so hard to prevent – or, more accurately, to postpone – the inevitable? There are two reasons.
First, the banks and other financial institutions in Germany and France have large exposures to Greek government debt, both directly and through the credit that they have extended to Greek and other eurozone banks. Postponing a default gives the French and German financial institutions time to build up their capital, reduce their exposure to Greek banks by not renewing credit when loans come due, and sell Greek bonds to the European Central Bank.
The second, and more important, reason for the Franco-German struggle to postpone a Greek default is the risk that a Greek default would induce sovereign defaults in other countries and runs on other banking systems, particularly in Spain and Italy. This risk was highlighted by the recent downgrade of Italy’s credit rating by Standard & Poor’s.
A default by either of those large countries would have disastrous implications for the banks and other financial institutions in France and Germany. The European Financial Stability Fund is large enough to cover Greece’s financing needs but not large enough to finance Italy and Spain if they lose access to private markets. So European politicians hope that by showing that even Greece can avoid default, private markets will gain enough confidence in the viability of Italy and Spain to continue lending to their governments at reasonable rates and financing their banks.

Morning Edition did a story on this today.  I have a hard time seeing how the banks always get bailed out.  Why don't the countries protect consumer deposits, let the banks fail, then capitalize new banks.  The implicit guarantee allows the banks to borrow more money cheaper, take bigger risks, then not worry about the possibility of failure.  If stockholders were wiped out, and bondholders took haircuts, or were wiped out too, I bet the banks wouldn't be able to leverage up at 35 times equity, thus they'd be more stable.  Banks will continue to get in trouble, so long as profits are privatized, but losses are socialized.  Let's stop that.