A Very Bad Idea

Reuters (via Ritholtz):

The impetus for this completely insane policy seems to have come from the ECB, which genuinely seems to believe that bailing in private-sector banks, in the Greece restructuring, was the “terrible mistake” which caused the current euro crisis. Talk about confusing cause and effect: it was Greece’s fiscal disaster which caused the restructuring and the necessary bail-in.
To understand just how stupid this is, all you need to do is go back and read Michael Lewis’s Ireland article. The fateful decision in Ireland was to take the insolvent banks and give them a blanket bailout, with the banks’ creditors all getting 100 cents on the euro. That only served to put a positively evil debt burden onto the Irish people, forcing a massive austerity program and causing untold billions of euros in foregone growth, while bailing out lenders who deserved no such thing.
Are we really going to repeat — on a much larger scale — the very same mistake that Ireland made? Does no one in Europe realize that this is the single worst thing they can do?

This seems like a major move to protect the European banks, which are most truly zombie banks.  These stacks of debt aren't going to get paid back in full, and the overlevered banks are really insolvent.  Leaving them waiting for debt payments that won't ever come will leave the world economy in slow motion.  Writedown the debt, nationalize the insolvent banks, then restructure and move on.