Greek Tragedy....again

The overnight news is that Greece will put the EU rescue package to a referendum.

Up until this latest rescue package, all prior efforts can best be described as:

"Hey Greece is in trouble, they have borrowed too much and they are having trouble borrowing more. Let's ride to the rescue by co-signing some loans for them."

Imagine the surprised looks on central bankers faces when they realized that more debt did not help a country with too much debt.

The latest rescue package seemed to finally grasp the point that if too much debt is the problem, then more debt is not a solution. It imposed a 50% 'voluntary' haircut on some investors of bonds. The haircut would have reduced Greece's debt but it was bizarre and selective in it's application. Some holders of Greek debt would be kept whole while others would take the "voluntary" haircut which would not be considered a default event for some inexplicable reason.

I think that the referendum will see the rescue package voted down. Right now the markets are falling due to the increased uncertainty. When the Greeks reject this plan, a formal default will be triggered and holders of Greek bonds will take much bigger haircuts.

Greece will hit rock bottom and have great difficulty borrowing money in the bond market, however this is a necessary step to beginning a recovery.

Stay tuned folks...this drama is far from over.