Why A Grexit Would Make Lehman Look Like Childs Play

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The standard image is of companies just waiting to buy new "cheaper" drachma goods from Greece. That just doesn't reflect the reality of modern trade. Most companies have existing suppliers and contracts, so they may not even be able to switch to Greek suppliers in the short run. But the key word there is "contracts". Companies depend on contracts. Do you really think companies will be busy trying to sign new deals with Greece, a country that just left a currency union, and only recently retroactively changed its laws for bondholders?

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The horrible state of Portugal and Ireland, the weakened state of Spain and Italy, the ignored but dubious state of Cyprus, Slovakia and other small members make the ramifications of one country leaving that much more difficult to deal with. If Greece was truly an isolated case, then fine, but it isn't.

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Currency risk... don't think anyone truly believes Belgium is a great credit. The Belgium 5 year bonds traded at 5.6% in November of last year. They are currently at 1.8%. This is Belgium, the home of Dexia, the land without a government, and yet they are trading much better than other members of the November 5% club. That is at least in part because people believe they will stay in the "good" currency union.

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most politicians have taken the lesson never to let a "Lehman" happen again, so once they see that Greece is Lehman on steroids, they will back down and figure out enough to give Europe and the markets a solid kick.