The socialization of risk

David Einhorn, in his now classic speech entitled "Private Profits and Socialized Risk", detailed the ramifications of a system that incentivized massive risk taking to maximize financial gain without proper accountability for losses.

His target at the time were the investment banks, but his analysis applies equally well to the EU.

The current bail-out structure for Greece is fundamentally a transfer of risk by policy makers who are "soclializing" this risk to taxpayers in the Euro are (and beyond, as the IMF is now involved, which is backed by taxpayer populations across the globe.

This sets a terrible precedent, as the market knows Greece is but a small player in this game, and while its risk may be digested and palatably socialized, the same cannot be said for larger countries.