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Lehman 2.0

The global financial system is a tight web of connections.

While the US Congress debates financial reform the Euro system is being shaken down by its weakest member Greece

In the financial crisis of 2007-2009 everyone was taken by surprise by “mortgage repayment” default risk…

The assumption had always been that RMBS were sufficiently varied by geography and contained the mortgages of borrowers able to repay.

It turned out that Wall Street, led by Goldman Sachs, among others, had obscured the risks and packaged and sold increasingly toxic securities.  Surprise!

Now financial markets are being blind-sided by “sovereign risk“… or the risk that a country does not have sufficient revenue to support its debt payments… this is an old story… think Louis XVI and many other sovereigns…

The chart above, from the German paper Spiegel (HT FT Alphaville), shows the concentration of exposure of various countries to Greece… note that the banking systems of various Euro countries exposed to Greece are very leveraged and weak… weak banks with weak capital… been there… done that…

Lehman 2.0?

Oh yes… could be… and who can bail out whole nations and banking systems again?

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