* as had happened many times before when investors made the imprudent choice bought government bonds that were never going to be paid back*
I would just argue that it's not imprudent. They get higher than "risk free" yields, and many times get bailed out. On average they still outperform the risk-free rates.
Right. But if people diversify across all risky government bonds, even after defaults, they'll outperform people who only invest in the ultra-safe governments. The yields are higher to entice people to take the risk, and live with the volatility.
I would just argue that it's not imprudent. They get higher than "risk free" yields, and many times get bailed out. On average they still outperform the risk-free rates.