Derivatives and Sovereign Debt

The Greek problem is a case of overwhelming, out-of- control sovereign, or government debt, gone berserk. It’s a classic lesson for all countries to observe because others are destined to trip up in similar fashion before long. Spend and spend, as many countries do, especially the U.S., and the same quagmire can result.

Lots of talk also exists about Greek derivative exposure as a percentage of capital of different banks. Information from the U. S. Office of the Comptroller of the Currency shows how high bank derivative positions are, particularly with Greece, And that little has been done in reducing derivative positions since the American financial meltdown. Derivatives are currently a $605 trillion market.

This “concern” is constantly studied and reported in the media and despite all the hand wringing, derivatives are not quite the boogie man they are purported to be at every hint of debt problems.

Perhaps because they are so little understood, certainly by politicians, and most of the financial media.