U.S. bank exposure to Greek debt is $43 billion – that’s a lot but certainly manageable, isn’t it? The problem is that U.S. bank exposure isn’t limited to just Greece. It doesn't include exposure to Portugal, Italy, Ireland, Spain, etc... which are all exposed even more to Greece. Contagion. And as I’ve said before, the sovereign debt of Greece right now, which isn’t worth anything absent some other party paying it off, hasn’t been marked to market. It’s still on the balance sheets of all of the banks as if it were 100% good!
Meanwhile, European discontent continues to simmer with labor strikes and social strife. And today, it’s announced that Greece won’t hit it’s economic targets. This can’t be sitting well with the Germans who are already grumbling about the sacrifices that they are going to have to make for a country that just doesn’t seem to want to take any medicine to make themselves better.
As the European Union and International Monetary Fund wrestle with how to address the sovereign mess, the U.S. financial fate in this situation can be synthesized down to one question: Will we see contagion, as we did with our own financial/banking /housing crisis in 2008, starring Fannie Mae, Freddie Mac, AIG, Bear Stearns and Lehman Brothers?