By Les Dunaway

This morning about 6am, as I do each week day, I read the Financial Times “Asia: AM” which looks at what’s happening in the Asian and European markets. The top story was “EU reaches agreement on Greek bonds”.

The top line on the “agreement”, which has not been agreed-to by anyone at this point, is that all holders of Greek-debt bonds will get new bonds – whose face value will be half (that’s 50%) of the existing bonds. But this won’t be a “default”. Yeah, right.

The remainder of the agreement is still a little fuzzy (well, a lot fuzzy).

Pierre Gave, head of research at Gavekal, a Hong Kong-based research group, said the Greek deal was “big on words but short on detail”.

“To me it seems like we don’t really have a lot of detail. What is this, the 14th meeting in the last 20 months? I think it’s just more of the same. Europe is going to continue to muddle through but we won’t know the end-game until a year or two from now, whether we will move towards a full-scale fiscal federation or whether we will move to a breakdown of the euro experiment.” <my emphasis>

I share Pierre’s view. However, on Monday, some of the fuzziness was momentarily blown aside by people in the German Bundestag (legislature) [read]

The eurozone bailout fund’s firepower is set to be leveraged to more than euro1 trillion ($1.39 trillion), German opposition leaders said Monday following a briefing with Chancellor Angela Merkel. Governments from the 17-nation eurozone hope that the euro440 billion European Financial Stability Fund, or EFSF, will be able to protect countries like Italy and Spain from being engulfed in the debt crisis.

To do that, however, it needs to be bigger or see its lending powers magnified.

Frank-Walter Steinmeier, parliamentary leader of the opposition Social Democrats, and the Greens’ Cem Oezdemir said the chancellor informed them that the EFSF will be leveraged well beyond its current size.

Now “leveraged” is a cute little financial word for “lending money you don’t have”. Like the banks in the US with the sub-prime mortgages. How many of them are gone?

So, we have a situation where Greece needs loans because they spent money they didn’t have and the EFSF is going to loan them money that it doesn’t have.

What could go wrong?

SO, why do we care? Well, there’s two parts to that: first, how much PIIGS debt do US banks hold and second, when Greece defaults, how many dominoes fall – Italy, Spain, France?

Debt

There are varying opinions about how big a hit US banks will take. Some of the more optimistic pronouncements sound a lot like whistling past the graveyard. One well reasoned look was published in NetNet “Wall Street Economist: Greece Ripple Effects Could Create Another US Financial Crisis“.

Dominoes

If you’ve stayed away from the Six O’Clock news for the past few weeks, you probably know that France has joined Portugal and Spain on the walking wounded list. Partly because of French banks exposure to Greek debt and partly because the French government refuses to address their over-spending (sound familiar?). [read]

Can Bank of America, already on the ropes and cutting 30,000 jobs, survive the Greek, Spain, Italy, France debt crash? US exports to Europe account for 21% of our total exports. Exports have been the one bright spot in our economy for the past two years. Where will we be if that 21% goes to 10% or 5%?

Unless the politicos around the world heed Maggie Thatcher’s famous maxim

“The trouble with socialism is that, sooner or later, you run out of other people’s money”

, the world is headed for a very bad place.

Do you know to what degree your Congressmen are aware of the above and to what degree they understand it is a preview of where our country is headed? If the news from the Super Committee today is any gauge, the answer is “Not much!”.

Do you think that it might be worth your while to ask those questions and to act on the answers, or the lack thereof, that you get?