There's a particular piece of idiocy that is distressingly common and stupid -- the idea that lending money to governments (that is, buying government bonds) should be "cheap" or the "risk free" return rate.

This is false -- it is a convenient lie that is intentionally promulgated by both banksters and governments for their benefit and to your detriment.

The reason this is false is that all lending to sovereigns is inherently unsecured.  That is, the only thing you have is a bare promise of repayment backed by the government's willingness and ability to tax the citizens.

This is not assured and in fact is under the control of the citizens themselves and not the "debtor."

Now we have this:

LONDON — Hedge funds have been known to use hardball tactics to make money. Now they have come up with a new one: suing Greece in a human rights court to make good on its bond payments.

The novel approach would have the funds arguing in the European Court of Human Rights that Greece had violated bondholder rights, though that could be a multiyear project with no guarantee of a payoff. And it would not be likely to produce sympathy for these funds, which many blame for the lack of progress so far in the negotiations over restructuring Greece’s debts.

They are of course free to sue. They might even win.  Good luck trying to collect.

That's the problem, of course.  You can sue and you can even get a judgment, but collecting it is another matter.  Hedge funds do not have a monopoly on force, which means they can't shoot their way to success (well, not legally anyway.)

What I'd do were I to be Greece would be to tell all external creditors to go stick it where the sun doesn't shine.  No negotiation, no "haircut", simply this -- your bonds are worthless.  Goodbye, and don't let the door hit you in the ass on the way out.

Then don't leave the Euro.

Yes, this would instantly slam the door on further borrowing.  So what?  Greece needs to do that anyway.  They, like the rest of the world's governments, need to stop spending more than they can tax.  This means a massive cut in the size of government but this cannot be avoided no matter what is done.

So do it, and instead of sapping off part of your tax stream to pay creditors, don't pay the external ones at all.  Pay the internal ones but issue no more debt -- period.  Retire what you have for Greek banks and pension funds, but not one penny to outsiders, and forbid trading of the instruments -- whoever owns 'em on the day you do this is the beneficial owner -- period.

Sure, this would be controversial.  It would probably cause other lenders to jack up the cost of money for governments around the world, assuming Greece got away with it (and short of someone invading them, they would.)

That's good too -- it's about time that people recognized that unsecured lending is dangerous and should come with a high interest rate -- including when the borrower is a government.