Originally Posted by mike762
What's wrong with this possibility is that it has what is known as "chained risk". A default in Greece could lead to a daisy chain of defaults in banks within Europe, and trigger Credit Default Swaps (insurance) that four of our largest banks have written against a default in Greece.

Even if the ISDA (International Swaps and Derivatives Association) deems that a default has NOT occurred, the market for debt instruments could decide otherwise, thus causing losses in ALL bonds issued by weaker sovereigns such as Portugal, Ireland, Spain, et al, and would call into question the value of any paper without specific collateral backing it up.

If that happens you get declines in the equities of the financial institutions involved. Since finance is more than half of all the players on most stock markets, a major decline could occur there too. A simultaneous decline in both bond and equities markets is the worst of all worlds, especially for those with fiduciary obligations such as pension plans and insurance companies, especially if they have exposure to any of the players involved either through bond issues or equity holdings.

In essence what you get is a collapse of the world's financial system brought about by a lack of confidence that no paper issued by ANYONE is worth what it's printed upon.

That's what is at stake, and unfortunately, is inevitable at some point.


+1