As you can see, the German 10-year was yielding very close to the same amount ~4.5% in 2007. The point being, that Greek bonds were never some big yield reach for European banks.
This is a crucial difference, so we'll just hammer at it again: European banks were not buying Greek debt to be greedy and grab more yield under the guise of "risk free."
On that basis alone, it's a totally different animal than with subprime CDOs.
What's more, in the US, investment banks basically built a factory to churn out more and more housing-backed assets, because the demand for it was so voracious. We've never heard any evidence that European banks had some role in urging countries to crank out more and more debt. Instead, European countries spent and borrowed more to counteract the effects of trade imbalances that were the inevitable outcome of a system that didn't allow countries to devalue their currencies.
Okay, you say... "maybe European banks weren't trying to manufacture AAA-rated products like their American counterparts were, but still, shouldn't they be punished for assets that go sour?"
Here's the problem: European regulators actively encouraged banks to hold sovereign debt by counting that debt as "risk-free" for regulatory purposes. This attempt by regulators to mandate the risk free-ness of sovereign debt was on full display when, in the summer of 2010, when the first round of bank stress tests were undertaken, sovereign debt was still not counted as a risky — and that was when sovereign debt was the #1 risk that everyone was freaking out about!
You can hardly blame banks for holding a ton of the stuff.
One problem that people have, when talking about the European crisis, is that there really aren't any obvious villains.
In the US crisis, there were villains aplenty: Regulators who looked the other way, the packagers of deck-stacked CDOs, salesmen relentlessly pushing no-doc loans, and so on.
In Europe, who's at fault?
Italy, which is currently the world's biggest worry, has actually been an exemplar of budget discipline. It actually has mostly run primary budget surpluses. What's more, the big "winners" of the boom years aren't the ones who need a bailout right now: Germany has lived high on the hog of the Euro for awhile, and yet the market is treating it very well.
The easiest villains are the people who constructed the euro, with its separation of monetary and fiscal policy, but you can hardly punish them now, unless you want to hold them responsible like you might hold responsible the engineer of a badly designed bridge.
And this gets to another big problem of restructuring the debt on the banks' dime. It doesn't fix the underlying problem, which is the fact that all these countries still don't have sovereign currencies, and a central bank that will back them up (which the US, UK, and Japan all have).
If Europe wants to have a robust economy, it needs to have robust public finances, and that can only happen when a system is put in place that ensures that sovereign debt is risk free. If banks have any reason to fear that they won't get paid 100-cents on the euro for their sovereign debt holdings, that's basically an impossible prospect.
This story originally appeared on Business Insider
Read more from Business Insider:
» Hey Wall Street, Here's 13 Ways To Spruce Up Your Wardrobe This Winter
» Goldman Sachs Reveals 5 Huge Global Themes For The Next 10 Years
» CHART OF THE DAY: This Will Be The World's Richest Country In 2050
» House Committee Cancels Vote On Insider Trading Bill After Leadership Flips Out
Questions? Comments? Email us atNetNet@cnbc.com
Follow NetNet on Twitter @ twitter.com/CNBCnetnet
Facebook us @ www.facebook.com/NetNetCNBC