It was another wacky week on Wall Street as concerns surrounding European defaults dominated the financial mindset. To most Americans, the response to such fears is: "So what? They're on the other side of the pond!"
The reality, however, is that it does matter - in a big way. In the first phase of the financial crisis in 2008, government lifeguards bailed out the banks. In this sovereign sequel, the question remains: Who is going to save the lifeguards?
What's more, the overseas situations aren't isolated. While Greece is only the size of Massachusetts, much of its debt is owned by Portugal, whose debt is owned by Italy, whose debt is owned by France, whose debt is owned by Spain, whose debt is owned by Germany.
This is similar to the first phase of the crisis, with Greece as Fannie Mae, Portugal as Freddie Mac, Italy as AIG, France as Wachovia Bank and Germany - which owns them all - assuming the role of Lehman Brothers. Thankfully, the rest of the script has yet to be written.
If Greece defaults, the dominoes will topple throughout Europe, one after another, until the system resets. Further, the largest holders of sovereign debt are European institutions, and given our interconnected global economy, stateside banks are very much part of that financial food chain.
You will hear a lot of stories about political transitions that presumably pave the way for bailouts, almost as if the European Union is bribing nations to shift their leadership if they want to receive billions of dollars in aid.
If they succeed, we'll see widespread austerity measures and upward taxation, neither of which is pro-growth. That will crimp an already fragile global economy, but look on the bright side - it is entirely more appealing than the alternative.
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 www.minyanville.com.