Greeks Like a SIV

To the heart and mind
Ignorance is kind
There's no comfort in the truth
Pain is that all you'll find
--Wham

By today's Greece bailout actions, Peter Atwater suggests that EU leaders have 'all but guaranteed themselves a Lehman moment' if a second country should hit the skids.

His rationale is that the Greek bailout package resembles a special investment vehicle (SIV) structure reminiscent of the heady days of structured finance. The Greek SIV essentially seeks to slice and dice Greek tax receipts among various classes of public and private creditors.

As he examines the financial engineering plan, Atwater sees 'ghosts of crises past.' What makes the Greece situation unique is that investors have been placed into this 'sovereign SIV' retroactively. Henceforth, private holders of troubled sovereign debt have to realize that they too are likely to be forced into a SIV-like arrangement should things turn ugly. The moment the issue becomes potential loss of capital and who gets what haircut, then bondholders are likely to flee together.

Policymakers have created far greater likelihood of binary behavior in Euro sovereign debt markets.