Investors presumably choose fixed-income strategies in an effort to help guarantee safety in exchange for upside gains. If that safety is deemed arbitrary--if a central bank is able to subordinate other investors of that very same security--then that, my friends, is a default regardless of snazzy semantics or promises that it's an isolated situation. You don't need a law degree to understand this; you only need to have an unbiased lens.
The concern in the marketplace has never been Greece; it has been the ramifications of a Greek default on an interconnected maze of global derivatives tying together financial institutions that, until a few years ago, viewed sovereign debt as one of the safest investments in the world. The underlying issue -- and the fate of the free market world -- boils down to two very simple, yet difficult questions: Who wrote the Credit Default Swap contracts, and what collateral/counter-party risk sits on the other side of that bet?
The answer, as it stands, is "I don't know."
It seems that the central banks around the globe do not understand the unintended consequences of the things they do or even more frightening ...they don't care
Doug Hendee Vice-President
- Todd Harrison: Is the European crisis over or just beginning? (marketwatch.com)