FT Alphaville has a nice piece on some of the bigger concerns surrounding the latest turn in the Greek debt crisis.
Stock markets have fallen sharply on Tuesday after Standard & Poor's downgraded Greek government bonds to junk status, raising the country's cost to issue debt along with the possibility of a default. But there is a bigger concern: S&P also said that in the event of a default, it believes debt holders would recover an average of just 30 per cent to 50 per cent of their investment.
This could have huge implications for banks that hold Greek bonds if there is a default. FT Alphaville includes a nifty chart showing European banks' exposure to Greek debt (alas, ranked by country of origin rather than actual bank name), with the view that a few banks might be close to insolvency.
Meanwhile, as the stock market falls, the VIX volatility index soared on Tuesday. The index, widely known as the fear gauge, rose by 20.4 per cent, taking it to its highest level since late February.
Keep in mind, though, that the index sits at just 20.4 right now, which is still very low by recent standards. It shot above 80 during the worst days of the financial crisis, in 2008.
As well, there have been a number of false starts for anyone convinced that volatility was coming back to the stock market: On April 16, the VIX rose 15.5 per cent and on February 4 it rose 20.7 per cent.
David Berman