Robert Reich tweets:
50% probability Greek default. US banks counter-party debt huge. Prepare for another Lehman Brothers. Second big bank bailout on the way?
Timothy Geithner is on his way to an unprecedented meeting with the finance ministers of the euro zone.
If Greece defaults - and that looks imminent - there will be emergency efforts in Europe to recapitalize the banks in an effort to keep the contagion from spreading:
The initial fallout is predictable which will be a major “haircut” for big banks, so big that it was reported last week that the German government is completing contingency plans to recapitalize the country’s banks which could take as much as a 50% hit on their Greek bond holdings. This event could easily lead to a credit crunch across Europe, banks failures/restructurings, that could lead to an even broader financial panic in Europe and even around the world.
Perhaps even more worrisome, is the potential for the so-called “contagion” effect, wherein Greece sets off a series of falling dominoes that could include Portugal, Ireland, Italy and even Spain as investors flee the region for safety. This could become a fast moving brush fire that could quickly spread to Asia and the United States and set up conditions for a global credit crunch like the collapse of Lehman Brothers only on a global scale.
Except now there's a majority of Tea-publicans in charge of the House, many of whom were openly trying to force the country to default on its debts mere weeks ago in an effort to damage President Obama's re-election prospects.
What help can be expected from a crew of ignorant irresponsibles like that? They're not exactly the most promising partners to help put out brush fires. Not when they're practicing a scorched earth policy themselves.