AUTOREFRESH 
“Risk free” is defined differently in Europe
During times of stress in the banking system central banks offer institutions the ability to “borrow short” at low rates and “lend long” at higher rates.
US banks have been rebuilding their capital by borrowing from the Fed at near zero and buying US Treasuries (lending to the government) further out the yield curve, profiting from the higher yield on the longer-term bonds. So long as they hold the bonds to maturity and the US does not default on its debts, the trade is essentially risk free.
In Europe, big banks have been playing a riskier game. Since European government bonds come in 16 different flavors, they’ve been passing up vanilla high-quality German bunds for tootie fruity lower-quality Greek bonds. In times of low stress, this is a more profitable strategy than merely buying the German benchmarks. In times of stress, it is a sure loser.
The result? Big European banks have been buying credit default swaps to protect their positions. Greek bond prices have plummeted as CDS traders hedge their positions. In other words, a vicious spiral. Rather than blame hedge funds, European leaders should look no further than their leading banks.
Until there is a unified European bond market, this risk will persist as banks invest in “safe” government debt hoping for a political rescue if the bets go bad. Sounds like sub-prime all over again…
that is very deep Jamie, thanks for the insight…if that’s how all banks in the world work, can i say that we are the victim not the banks?, what i mean that if their bet went wrong than government have to rescue then, definitely using our tax money (cmiiw) than we are the one who bailout those banks not our government.
and Jamie, u said in the 2nd paragraph, “..and the US does not default on its debts, …”..what exactly defaults on debts? how is that possible? and what will happen if large country like US can’t pay its debt?…Thanks