As the strongest creditor country, Germany has emerged as the hegemon.

A prudent lender should have considered these facts before making the loans.

Voices are coming from Germany, suggesting that ECB be the last resort creditor.

Now, however, banks use models conjured up by faraway financial wizards to mass produce credit and a range of derivative products.

Bankers were once supposed to know every borrower, and to make case by case lending decisions.

The main reason is simple as debt is reduced, its price rises in the secondary market, sharply curtailing the benefits to the borrower.

If stability is to be preserved, financial markets need regulators and a lender of last resort.

First, and most obviously, Europe already has its own in house lender of last resort.

That was the privilege of having the largest, most dynamic economy and one that acted as a world creditor.

Germany, the leading proponent of austerity and the most influential creditor, was accused of insufficient flexibility and solidarity

When markets are in a euphoric state, they are in no position to exert discipline on any borrower, let alone a government with a reasonable credit rating.

First, banks still have few reliable means of checking borrowers creditworthiness, including previous loans from other banks.

Since an unlimited number of CDSs could be sold against each borrower, the supply of swaps could grow much faster than the supply of bonds.

As the current crisis has demonstrated yet again, capitalism needs stabilizing arrangements such as a lender of last resort and counter cyclical fiscal policy.

The creditor debtor split was thrown into sharp relief this summer, during the negotiations over Greece s third bailout agreement.

The central banker is not only a lender of last resort, but also a speaker of last resort.

The debtor needs a fresh start through a debt write off the creditor must find a way to provide one without rewarding bad behavior.

And if it is a direct institutional supervisor, as well as being the lender of last resort, there are different considerations again.

France will overtake Italy as the largest borrower on the international markets, within the eurozone, which means that France will find itself in a very precarious situation.

The easier it is to get a home mortgage, and the lower the down payment that lenders demand, the less young people need to save to buy their first house.

Advocates of this approach stretch the concept of lender of last resort to suggest that providing liquidity to commercial banks is the same as funding governments.

Outside the advanced countries, there is a view that the world will return to pre crisis conditions, with a stable US that functions as borrower, lender, and consumer of last resort.

With America turning away from its global role of borrower of last resort, the rest of us will need to sharpen our competitive edge to sell in other markets.

Right now is precisely the time to do so, given that the United States has become, without rival, the world s most reckless borrower.

Germany, as the largest creditor country, is in charge, but refuses to take on additional liabilities as a result, every opportunity to resolve the crisis has been missed.

In the old days, when borrowers found it impossible to make their payments, mortgages would be restructured foreclosures were bad for both the borrower and the lender.

If a homeowner stops making mortgage payments, the creditor can take the property but cannot take other assets or a fraction of wages.

That is, an increase in the willingness to lend tends to increase the value of the collateral, and also improves the borrowers performance, thereby encouraging a relaxation of credit criteria.

Spain has the same fiscal and structural problems that it had prior to the OMT program s launch, but now it has an external lender of last resort.

In Canada, as in the US and Western Europe, a modest home, a small plot of land or a solid credit history can be enough to secure a loan. But such small scale loans are hard to obtain in developing countries, which often lack the necessary institutional arrangements such as credit agencies and clear property rights.

The International Monetary Fund and the World Bank can serve as lender of last resort to emerging markets at risk of losing market access, conditional on appropriate policy reforms.

Likewise, an IMF program for Ireland which seems increasingly likely will not bring down domestic bond yields and reopen credit markets to any kind of Irish borrower.

Obstfeld had in mind a bailout mechanism for banks, but it is now abundantly clear that one also needs a lender of last resort and a bankruptcy mechanism for states and municipalities.

Higher interest rates to reduce the housing boom seem, even in retrospect, ill advised if the cost is mass unemployment. And Greenspan eschews paternalism he would not assume the role of a regulator telling people that they cannot buy a house even though a lender is willing to finance it.

And Greenspan eschews paternalism he would not assume the role of a regulator telling people that they cannot buy a house even though a lender is willing to finance it.

Like banks, all these financial institutions are subject to liquidity or rollover risk the risk of going belly up if their creditors do not rollover their short term credit lines.

When the IMF comes in, it typically applies some degree of conditionality, as would any other lender, to ensure that its loan is eventually repaid, and used for its intended purpose.