Americans don't need to bail out Europe -- they just need to take measures to ensure that panic doesn't strike their banking system
The situation in Europe just gets uglier and uglier. The situation in Greece remains volatile, and now Italy is on the brink of collapse. Imagining a way in which this ends well is becoming an exercise in fantasy. A sort of best-case scenario is a debt restructuring for Greece, Italy, and possibly others. Even if that happens, bondholders will be forced to take deep losses on their debt. And therein lies the danger to the U.S.: those losses could cause another financial crisis that makes its way across the Atlantic. American policymakers need to take measures to prevent that from happening.
A Point of Reference: The Financial Crisis of 2008
To think about how to deal with this problem, let's go back to the financial crisis of 2008. You may recall, it didn't go so well. When the housing bubble burst and home prices began declining, investors freaked out. They weren't sure how much exposure to the housing market banks had, so funding dried up and a credit crunch ensued. When banks faced an inability to roll over their debt, failure loomed.
So the U.S. stepped in through the TARP program. The cash infusions were portrayed as bailouts -- as gifts to the banks. But that's not really how they functioned. In practice, they were more like bridge loans. They provided the banks the capital necessary to calm investor panic. Once the financial sector settled down, the banks were able to raise capital relatively quickly and pay back those loans.