The front page of the FT today is focused on the continuing story of the Euro crisis and the proposed haircut on Greek debt. Why there is no discussion about the other PIIGS at the same time is beyond me, but hey ho we can do that next year perhaps.
Anyhow, the Bankers are trying to defend their positions as much as possible. Clearly they don;t want to take more state money than they have to as this will end in restricting their own pay substantially. The current line being pushed is fear of the CDS market and what impacts that may have.
Rather conveniently, no one knows the answer to this - so it is the ultimate bogey man. As the respected Chris Whalen observes ""To be generous, you could call it an unregulated, uncapitalized insurance market. But really, you would call it a gaming contract."
Although I doubt my 2 year old son could be persuaded to be scared of a Credit Default Swap monster - it does though seem to work on politicians.
the reason that it does not matter is that CDS are predominantly issued by banks and things that pretend to be banks. the fact that some of these are going to have big problems is of little consequence to the real world and indeed, some banks going under is a good thing. As with Northern Rock, idiotic business models need to be allowed to fail.
Worse still, with a 100 billion euro fund to support the banks with their bad CDS positions and overload of Greek sovereign debt, there is a decent fund to help the needy anyway - all at taxpayer expense. This is even more of a non-issue.
We only have a day or two to wait for the final verdit, it will be interesting to see if financial alchemy based lobbying wins a reprieve for the banks or not.