[quote=briansd1]The interesting thing about a Greece default is that nobody knows who will be left holding the bag.
Because derivatives are traded in a unregulated markets, nobody knows what the consequences are.
The banks holding the Greek debts might have insurance policies against default. Those policies might have been sold by American companies.
Will we see another AIG type failure, either in America or Europe?
No one seems to be sure, in large part because the world of derivatives is so murky, but the possibility that some company out there may have insured billions of dollars of European debt has added a new wrinkle to the sovereign default debate.
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Which is exactly why the derivatives market should be kept very small, very highly regulated, and fully transparent.
Personally, I think derivatives are simply a tool to allow mispricing of risk on the front end. IMHO, the world would be much better off without derivatives.
