The Five Little PIIGS

In October ’08 European banks looked pretty healthy; they held few toxic US mortgage backed securities. But, this strength was a fiction. European banks met their Waterloo in large holdings of euro-denominated sovereign debt of the PIIGS (Portugal, Ireland, Italy, Greece and Spain). The banks assumed that Germany, France, and other strong European economies would never allow a sovereign default of a Euro denominated bond. Oh well! And, here, once again, the rating agencies were MIA.

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