Greece Prepares to Default. Will Europe Implode?

That loud din you heard last week, where world wide markets were cheering and celebrating the 5% market rise in the Euroland bailout just went bust. The beer goggles didn't last long and after a weekend of introspection, investors everywhere are starting to freak out over a Greek default that will tumble Euroland banks. Which will leap across the pond and strangle the US banks.  Boom! So with the Greek default, it isn't a matter of.. if... any more, it is a matter of when.

What caused all of the hand wringing today is that Greek Prime Minister George Papandreou announced that the Greek government is calling for a referendum on the Euroland bailout package for Greece. This call for a Greek referendum shocked Euroland leaders who had thought they had finished the rape of Greece and were moving on to Italy. The New York times outlined the Greek announcement here.

The stakes are extremely high. A no vote could break the deal between Greece and its so-called troika of foreign lenders -- the European Union, the European Central Bank and the International Monetary Fund -- which have demanded structural changes and austerity measures in exchange for aid.

Without the aid, Greece would not be able to meet its expenses and would default on its debt, sending shock waves through the euro zone and the world economy.

A yes vote, on the other hand, would move the package forward, effectively shifting responsibility for the nation's painful economic choices from Mr. Papandreou's Socialist Party onto the public. That outcome would help Mr. Papandreou shore up his political position and avoid the instability of early elections.

Does Papandreou have a chance of passing this referendum?  Markets don't think that the Greek people will go for this as the Dax dropping 5%
overnight and the Dow falling today should tell you.

This will lay bare the global banking problems which will implode in Euroland first and most likely in the next 12 to 14 months. Why Euroland?  Euroland banks are leveraged at least 26 to 1, which, if they lose a small 4% drop in their asset prices, make them insolvent.  But the bigger problem is that most of the Euroland banks have debt that needs to be rolled over before the end of 2012. Graham Summers of Phoenix Capital Research reported...

Between now and then...

• French banks need to roll over 30% of their TOTAL debt.
• Spanish banks and Italian banks need to rollover more than 33% of their TOTAL debt.
• German banks need to roll over nearly 40% of their TOTAL debt.
• Irish banks need to roll over almost HALF (50%) of their TOTAL debt.

And this is going to happen in an environment in which sovereign debt auctions are failing (or would fail if not for ECB intervention)?

I trust at this point you are beginning to see why any expansion of the EFSF or additional European bailouts is ultimately pointless: Europe's ENTIRE BANKING SYSTEM as a whole is insolvent. Even a 4-10% drop in asset prices would wipe out ALL equity at many European banks.

This is Lehman 2008 with a much larger Boom!  Don't forget that US banks are as deeply leveraged or worse than their Euroland counterparts. Add to this the MF Global failure run by another Obama crony and you have to really start to take stock in your financial future.  Time to buckle up that helmet. This ride is going to get really bumpy!