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Todd Harrison: Is the European debt flap over -- or just beginning?

Todd Harrison

Todd Harrison

The bulls will argue that European policymakers have successfully navigated the sovereign sequel to the first phase of our financial crisis.

They will highlight the difference between "drugs that mask the symptoms" - as administered by the U.S government since 2008 - and "medicine that cures the disease" in the form of debt destruction and/or reorganization, as is being proposed in Greece.

While investors exhaled when they heard of the latest Greek rescue, a looming question - and it's a biggie - remains: Does the ECB debt swap constitute a "default," and, if so, how will that reverberate up and down the financial food chain?

There is the potential that we will emerge from this stretch as a stronger, more unified global community - one where responsibility is shouldered by those culpable and rewards go to those who assume intelligent risk.

There is, however, another scenario: one where 75% of forced haircuts are not deemed "voluntary," where societal and geopolitical recourse awaits subjective policy, and where a court of law is needed to decipher a rule of thumb.

Investors choose fixed-income instruments for safety in lieu of the upside. If that safety is arbitrary - if a central bank is able to subordinate other investors of the same security - then that, my friends, is a default regardless of snazzy semantics.

Greece has never been the risk in the marketplace; it is 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.

While Europe approached its crisis much differently than we did - the U.S bought the cancer and sold the car crash - a commonality again ties our world together: The specter of contagion, as opposed to containment, will dictate our path forward.

Todd Harrison is the author of "The Other Side of Wall Street" and the founder and CEO of Minyanville, an Emmy Award-winning financial media platform. Read him daily at

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