After dropping to 5.15% in early trading

Debt crisis has been a regular part of economic life for centuries. Scores of books have been written and, over generations, some analytical consistency emerged as to how best to manage these types of crises. A key focus is to determine if the nucleus of the crisis is one of "liquidity" or more an issue of "solvency". In simple terms, is it a case of a responsible borrower with a manageable debt load facing a short-term inability to obtain necessary finance and/or roll-over maturing debt? Or is the marketplace dealing with a borrower hopelessly buried in unmanageable debt that is destined to be a further drain on limited resources (not to mention moral hazard issues)?

Centuries of experience are rather clear on the issue. There are benefits to both the borrower and the system when a solvent borrower facing liquidity issues receives access to a temporary funding mechanism - although this stressed borrower must provide sound collateral and borrow only at punitive rates (to dis-incentivize excess risk-taking and market reliance on liquidity backstop mechanisms). It is equally important to push insolvent borrowers into debt restructuring.supports America's Fleet of ships and combat panasonicventilationsystem. Incentives and rules of the game are critical to protect the integrity of system credit as well as monetary management. Insolvency is a cancer (think savings & loans companies in the United States from the 1980s or,To Fazil human hydraulichoses and shed tears like a burning candle. more recently, mortage guarantors Fannie Mae and Freddie Mac).

Still, extending life support to the insolvent is a recurring theme of financial history, and it is fascinating to see it as a recurring theme of how relatively small crises evolve over time into major systemic crises of confidence. It is a mistake made again and again - a seminal lesson repeatedly left unlearnt. Why? Because, of course, it's seemingly always politically expedient to bail out troubled borrowers rather than to deal with the messy short-term consequences of pulling the plug.Truby had to find a company to make the distinctive plasticmouldsuppliers, Especially when it comes to a systemically important financial institution (and certainly sovereign borrowers), policymakers view the costs and risks (including "contagion" effects) sufficient to try the support, bailout and hope method. The more fragile things appear, the greater the inclination to help things along with added government debt and loose "money".

Throwing good money after bad is one of economic policymaking's great cardinal sins. If somehow systems could only rid themselves of rotten apples before it's too late. But especially in our complex world, one can line up experts on virtually any issue and come to diametrically opposed conclusions. Objectively, Greece is hopelessly insolvent. European policy focus should have by now shifted away from a short-term fixation on the periphery to a more strategic focus of ensuring stability at the core. Instead, the market's obsession with the short-term again dominated the policy debate, and a much grander second bailout package was viewed as the only solution to counter escalating contagion.

Defying the lessons of history, Greece was granted a slug of additional "money" at extremely favorable borrowing costs. European ministers were adamant that Greece is a special case and others will not see similar special treatment. Right. Financial history is strewn with broken promises of no more bailouts and no more money printing.

The marketplace certainly celebrated the expansion of the EFSF mandate. Germany's influential Der Spiegel publication went with the headline, "Sarkozy Gets His European Monetary Fund". The EFSF will be given the power to act "preemptively" (ie credit lines to Spain and Italy, and their banks, insurers and such, as needed),any large investments in core IT coldsores, while also having the mandate to support bond markets through purchases (or expectations of buying) in the secondary markets. Market players have fretted the lack of a reliable market liquidity backstop mechanism. Der Spiegel quoted European Commission president Jose Manuel Barroso: "For the first time since the beginning of this crisis, we can say that the politics and the markets are coming together."

Well, we've not heard the last of the politics of this issue. A Financial Times headline: "Europe's taxpayers face billion-euro cost of private sector clause to fresh Greek bailout." Enlarging the size of the EFSF will have to be taken up by parliaments in Germany, the Netherlands, Finland and throughout the eurozone (the new mandate lacks credibility if EFSF lending power is not expanded). This afternoon from Der Spiegel: "A New Epoch Has Begun in the History of the Euro." From the UK Telegraph: "German Think Tank Ifo Says Greek Bailout Is Bad News for Taxpayers." And from Dow Jones: "Bundesbank Warns Greek Bailout Deal Poses Risk of Moral Hazard".

On Friday, from Bundesbank president, and European Central Bank council member Jens Weidmann: "By transferring sizeable additional risks to aid-granting countries and their taxpayers, the euro area made a large step toward a collectivization of risks in case of unsolid public finances and economic mistakes. That's weakening the foundations of a monetary union founded on fiscal self-responsibility. In the future, it will be even more difficult to maintain incentives for solid fiscal policies."

It is central to the "global government finance bubble" thesis that enormous international sovereign debt issuance, unprecedented central bank monetization, and ongoing activist policymaking ("inflationism") continue to distort risk perceptions and market pricing throughout risk asset marketplaces across the globe. The greater the perceived risks to various global bubbles (European debt or Treasurys, for example) the greater the degree of market confidence that policymakers will act faithfully to address issues - and bolster the markets! Evidence of the enormity of this bubble (along with the accumulation of risk by US and "core" European sovereign borrowers) mounts by the week.

Last Thursday's Greek summit certainly emboldens those holding the view that it is best these days to simply ignore risk and ride the policy-induced market wave. It's possible that highly speculative global markets become even more so - and only more volatile, unpredictable and dysfunctional. Certainly, there is the thought that the latest bailout at least buys a few months respite from contagion effects. Perhaps. There was, however, nothing in the new package that lessens debt loads in, say, Spain or Italy - or improves impaired economic structures. Over the past few weeks these types of fundamental factors became key market focal points. Fragilities were illuminated.

After dropping to 5.15% in early trading, Italian 10-year yields ended Friday's session 6 basis points (bps) higher to 5.39% (down from recent highs but still up 60bps in the past month). And I certainly don't expect the credit default swap marketplace to return to business as usual anytime soon.(who reportedly holds an eight per cent share of Russia's rubbersheets products market. So, between politics, economic fundamentals and some important marketplace degradation, these speculative and unsettled markets retain an abundance of uncertainty to grapple with.