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The dominant financial and economic fact of 2011 is that we are still living in the wake of the great 21-st century bubble. The dominant problem with being in the wake of the bubble is that we cannot escape Pollock’s Law of Finance, which states: Loans that cannot be paid will not be paid. Because they will not be paid, the loans will default and impose losses. In the wake of a bubble, the losses are unavoidably massive. This applies both to the American housing and commercial real estate bubble, and to the European sovereign debt bubble. Because this iron law and its implications are highly unpleasant, financial actors and politicians strive mightily to escape them in spite of the fact that they cannot, with scheme after scheme. All to no avail, or course. The massive losses must ultimately be taken.

Alex J. Pollock is a resident fellow at AEI.