The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.NEW YORK ( TheStreet) -- In the last quarter century, each and every time politicians have "kicked the can down the road" in order to buy time to protect their banks (with the false hope that there will be a "deus ex machina," i.e., a miracle), the resulting pain is much worse than if the problem had been addressed head on and resolved, even if painful at the time. You can look at this in many ways, including the deficit and entitlement issues in the U.S. But, I am going to limit myself to the financial realm in this particular essay.
When banks get into a position of knowing they have problem assets, they become quite reluctant to expand their loan portfolios and take on new risk. Oftentimes, the regulators, recognizing that they have dropped the ball in the first place, become overbearing and shackle the banking system. More than two lost decades later, Japan's real estate (land) prices are still falling, and economic growth remains sluggish, intermixed with frequent bouts of recession.
By forcing further "austerity" on the Greek economy in order to give them enough aid to pay the upcoming round of bond maturities at par, and therefore "saving" those particular bondholders, they are just prolonging the whole issue. Even more austerity will further undermine the Greek economy causing ever widening deficits. So, why are the bondholders so sacred? The answer, of course, is that the European banks hold huge positions in the sovereign debt of Greece and the other high-debt European Monetary Union (EMU) nations.
The inevitable Greek default is going to have a worldwide impact even if done in an orderly, thoughtful, and coordinated way. (If not planned properly, expect very high volatility in the financial markets.) And financial institutions in the U.S. will not be spared the effects of such a default. If the European banks appear in danger, U.S. money market funds, and very likely some of the SIFIs with loans to European banks, will be hard hit by market action. We have already seen the beginnings of this.