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Greek bondholders will be compelled to accept terms of their $270 billion restructuring plan tomorrow and that will trigger more than $1.3 trillion in contingent liabilities through loan insurance, and nobody knows exactly who holds that insurance.

It is credit event bigger than the collapse of Lehman Brothers that ushered in the 2008-9 recession. Stock markets sold off sharply yesterday but have barely digested this news.


At a meeting in Frankfurt yesterday the Greek Debt Management Agency 'confirmed' that, if a majority of bondholders agree to the deal, it 'intends... to declare the proposed amendments effective and binding on all holders'. That is a clear default.

Traders seem to have barely understood what this means. After all most people are bored stiff by the Greek crisis and thought it had been solved with the ECB bank loans and stability pact. Official estimates put contingent liabilities at $1.3 trillion.

Now as ArabianMoney has been warning for sometime it is evident that this has been a deception. What has actually happened is that the mechanisms to handle a default have been put in place.

As one attendee at the Hedge Funds World conference in Dubai this week put it: the patient is not being taken to the butcher's shop but properly prepared for surgery and aftercare.

Basket case

We wish Greece a swift recovery. The trouble is that the country has a nasty case of debtosis that has also affected many other nations. This is therefore the first case of many that needs treating.

Actually the analogy is not a very good one as the death of one patient in a hospital does not usually trigger a viral reaction in the rest of the population. This is what default means, and who gets it and how bad the disease proves to be is unknown.

These are dangerous times indeed and those pulling money out of financial markets have the right idea! There is going to be a lot of blood on the streets over the next few weeks.