Drink from Your Own Cistern

I feel sorry for Lawrence Taylor. Seriously, I hate seeing high-profile athletes self-destruct. I would rather that people learn their lessons the easy way.

Unfortunately, the Hall-of-Fame linebacker’s propensity for the fast lane has done him in.

His several fights with drugs have already bankrupted him once.

Now, he’s in hot water for paying for sex with a teenager who found herself being trafficked by a paroled convict.

He’s over 50. His time window for learning is closing fast.

He is now at the mercy of a New York prosecutor, the onus on whom is to show that he is tough on those who would exploit runaway teenagers.

Credit Default Insurance at Record High

And sovereign debt was supposed to be “safe”. LOL This from Bloomberg.

The cost of insuring against losses on European bank bonds soared to a record, surpassing levels triggered by the collapse of Lehman Brothers Holdings Inc., as the sovereign debt crisis deepened.

The Markit iTraxx Financial Index of credit-default swaps on 25 banks and insurers soared as much as 40 basis points to 223, according to JPMorgan Chase & Co. The index closed at 212 basis points March 9, 2009. Swaps on Greece, Portugal, Spain and Italy rose to or near all-time high levels.

Credit risk rose for a sixth day on concern the Greek debt crisis is spiraling out of control and triggering concern banks may face losses on their sovereign bond holdings. The Group of Seven plans to hold a conference call today to discuss the turmoil, after a global stock rout that briefly erased more than $1 trillion in U.S. market value.

Hey wait…I thought banks were supposed to be pulling in record profits and everyone was supposed to have complete confidence in them. What’s with the high credit default risk?

All the talk is about the problems in Greece. But folks, if this was just about Greece, there would be no issue. Everyone with at least a double-digit IQ should know this. Greece is miniscule on the financial scale.

If Greece went Tango Uniform–and the rest of the world was otherwise in sound shape–the financial markets would not be blinking right now.

But alas, the world is not in sound shape. Spain is larger in scope, and in the same boat with Greece.

As is Portugal.

As is Italy.

As is Ireland.

As is the UK.

As is….the U.S….

And China’s not in hot shape either.

On one hand, a collapse in Europe will create some opportunities here, as investor money races to the U.S., as we are the best house in the very bad neighborhood. There will be some arbitrageurs–high traders–who will make lots of money. But no one knows how large that time window is.

And our debt-to-GDP ratio is not much different than Greece’s.

If the cost of credit default insurance is going up, then the yield that bond investors demand for the products is going to rise.

That means interest rates must rise. Irrespective of what Bernanke does with the Fed Funds Target Rate.