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Via CBS Alain Sherter shares some ‘conventional wisdom’ – Domino Theory: Greece’s Default Could Topple Global Economy

Look out, below: Greece is on the brink of defaulting on its debt. Greek Prime Minister George Papandreou is making what looks like a last-ditch effort to convince the country to accept another round of deep spending cuts in exchange for a bailout by the other eurozone nations. If he fails — a real possibility given the level of public anger over the latest austerity measures — all bets are off.

When panic is in the air, it’s important not to overstate the risks. Many investors remain sanguine that Greece will avoid a full-blown sovereign debt crisis, or at least contain the damage if the nation is forced into restructuring. For instance, U.S. money-market funds have been preparing for catastrophe in Europe in recent weeks by moving their money out of eurozone banks into Scandinavian institutions.

Greece owes about $485 billion [$65 billion immediately], so what’s the panic? Well, when the geniuses in the West bailed out the banks a couple of years ago, they left the same group of criminal incompetents in charge of the financial system, instead of throwing them in prison for fraud. Since nothing bad happened to them personally, they resumed their old over-leveraged patterns which will blow up over even small events, like the Greek default.

If they had thrown bankers in jail and told bondholders to stuff it, like Iceland did, they would be able to borrow money at 2%, like Iceland can. When they bail out the banks and implement austerity, like Ireland did, they have to pay over 6%.

The austerity in Greece is about bailing out French and German banks that are over-leveraged. The Greeks are being ordered to impoverish themselves to pay for the bad decisions of those banks. The biggest problem for the eurozone is that the Greeks have figured that out.