Paul Krugman offers a data point that shows that default and devaluation works better than austerity and debt peonage.

The spread on an Icelandic CDS is now about a third that of the Irish CDS, which means that their borrowing costs are lower, as is the confidence of the market in their credit.

Rolling the Nobel Laureate:

Why, it’s almost as if defaulting on debts run up by runaway bankers and letting your currency depreciate works better — even from the point of view of investors — than socializing private-sector losses and grimly sticking with a fixed exchange rate.

Or to put this in earthier terms, if you want to survive this sort of financial meltdown, f%$# the banks, not the average citizen.