Remember all the hype in 1999 that the world would end in the year 2000 because computer systems around the globe would fail? It was thought that if enough internal clocks went down it would have a domino effect that would result in worldwide economic collapse.
Lots of guns and gold were snatched up, food supplies stocked away, and preparedness plans put in place. Then we waited… and waited some more…and finally nothing happened! Welcome to the Greek default scenario.
Game theory teaches us that people don’t just sit around and wait for a bus to hit them. If something bad is projected to happen it probably won’t because real humans in real markets anticipate events and act in their own best interests.
So who really thinks that some EU institution with fiduciary responsibility that has any capital in Greek bonds has not already sold that position and taken the loss, reserved against the bonds or otherwise hedged their bet? Only a fanatic would think that a Greek default at this point would have dire repercussions yet that is exactly what many pundits love to spout.
The markets work well when facts are known, and believe me, any hedge fund worth its salt knows the institutional exposure to the underperforming EU nations to the decimal.
Game theory shows us you cannot have a Black Swan event unless it is unexpected by the masses. Like it or not a few EU defaults would hardly surprise – meaning this one is largely priced-in. But that won’t stop the doomsayers from yelling “the sky is falling”… and Y2K will yawn again.
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