The headlines read that EU officials are scrambling over the weekend to avoid triggering a Greek default which could set in motion a daisy chain like detonation of those familiar weapons of mass destruction, credit default swaps. The very same WMD that nearly took down the global financial system in 2008. They’re back!!. And just when you thought it was safe to go in the water. Apparently there are astonishingly large bets between all kinds of counter-parties regarding sovereign European debt that threaten to take down the entire global financial system all over again. Or at least a lot of European banks. Strangely enough the Euro seems almost impervious to it trading at levels consistent within its range over the last five years.
Greek two year sovereign debt is already yielding close to 30% which anyone with common sense would tell you that is pricing in a lot of risk and probably not all the return of your principle. Yet for reasons I only half understand, the EU is afraid that if the rating agencies call this a default in name, it will trigger a lot of unpredictable consequences, most of which are certainly bad. Again its the same old parlour trick, WMD. There is someone who is turning the screws demanding more and more collateral. I only guess its the vampire squid and cohorts. Just when we thought we were almost done paying for houses we couldn’t afford, now we have to pay the price for governments we can’t afford.