Far be it from me to say that default is jolly good, but honestly, if anyone had ever read This Time is Different, they would realize that the fast decade with a lack of sovereign defaults is the exception to the rule. And if it is the exception, then really, why is everyone in a tizzy over the prospect of a nation or four in Europe potentially on the verge of default because they can not get their fiscal house(s) in order? We've been able to handle it before.
And if we're not able to now, whose fault is that? Those bankers? Or those regulators? Mayhaps our regulatory institutions are not robust enough to handle failures - that certainly seems to be my opinion, given how Basel II, a creation of regulators, stated that for European banks, they could treat any EU government bond as gilt bonds and hence hold practically no capital against them. So what do you think happened? Of course they loaded up on bonds from Greece, Ireland, Spain, Italy and Portugal.
But what about if there was no such regulation incentivizing those banks to hold those bonds? They would have had to judge, on their own, how much capital to hold against the prospect of default of those assets (rather than not needing to hold any against those bonds), which would have A) reduced the amount they would hold in the first place because it would be a hit against their capital base (less capital would be available for holding against lending for other assets); and B) forced them to consider the prospects of default for nations with weaker finances, and judge whether to hold those assets at all (which would have resulted in the market better pricing those assets based on risk and perhaps keeping those profligate countries from actually becoming too profligate because they couldn't get as good an interest rate as Germany).
In other words, which institution is the more robust given limited information? Regulators? Or the market? If in past decades we had plenty of sovereign defaults and ultimately handled them, and there was less regulation then; and today we're in a panic and not sure we can handle a default, mayhaps more regulation makes our system weaker? And mayhaps the market, with incentives less skewed by regulators (it really is an important point how the skewed incentives of Basel II probably will cause a lot of havoc on European bank balance sheets by weighting them much more towards risky government bonds than they likely would have held) would have been more robust and capable of handling such a situation, even limiting the extent of it since less asset buying of those governments' bonds would have occurred and hence less damage could be inflicted in the case of default.
Sadly, most people have an anti-market bias, so this rumination is likely to convince no one.
In any case, I'll leave you with this interview with Jamie Dimon (H/T Devon Shire).