Portugal is sometimes described as “England’s oldest Ally.” Given its current predicament it is a pertinent to ask what that ally should do. I, as an Englishman, have written and spoken a fair bit about the financial crisis and the commoditisation of banking obscuring risk. I have also been pretty forthright in saying that our personal and corporate and national appetite for debt is misplaced and unsustainable. So I have to say again bad debt is bad debt, no matter how you try to repackage it. Already Greece and Ireland have or are in the process of renegotiating their bailouts – guys it will not go away. There has to be, IMHO, a fundamental readjustment of the models we have been using and so I think for all concerned Portugal should default so as an ally we should ...let it happen. Tough love as they say. It would be tough on Portugal – however its a mess of their own making - politicians blaming the markets wont cut it, you made the calls to play them guys. It would also hit the lenders - so be more careful next time. The resulting double whammy might also shake the tree sufficiently to finally get action to address the underlying problems that mean 2008 will happen again and it will be worse next time.
Sorry Portugal sometimes a friends job is to give you the bad news no one else will.
And if you want to know - yes AIG should have been allowed to fail to.