To most casual observers, it might seem as if the main reason why Greek bonds have recently tumbled in price is that investors have suddenly, and belatedly, woken up to the dire state of Greece’s fiscal problems. But that tells only part of the tale: another factor that has also been hurting the Greek bond price is a subtle, albeit geeky, discussion that is quietly underway at the European Central Bank in relation to its collateral policy.

Greek debt saga has exposed not one, but two such fault lines: namely the tangible level of government debt, and the exit strategy debate. Or to put it another way, while Greece’s problems might have been partly masked for much of the last year, the day of reckoning is approaching fast.

Liddy Pleads for Forgiveness as AIG Rescue Unravels
Source: Bloomberg

American International Group Inc. Chief Executive Officer Edward Liddy is under pressure to convince taxpayers they won’t lose billions of dollars in the U.S. rescue of the firm after his plan to sell assets stalled. Liddy, appointed to fix the insurer after it needed an $85 billion lifeline that grew to $150 billion, is asking the government for help again, two people familiar with the matter said this week. His strategy to sell most of New York-based AIG’s businesses may be scrapped after not getting enough bids, and a restructured bailout may include giving units to the U.S. in exchange for forgiveness of some loans, the people said.