According to Paulson & Co., a hard default by Greece could spell economic disaster of unprecedented proportion along with the breakup of the Euro. In his 2011 recap letter to clients, he estimates $117 billion will be needed to recapitalize banks and satisfy other monetary needs.
Paulson & Co.:
“We believe a Greek payment default could be a greater shock to the system than Lehman’s failure, immediately causing global economies to contract and markets to decline,” the hedge fund said in the letter, a copy of which was obtained by Bloomberg News. The euro is “structurally flawed and will likely eventually unravel… …It seems likely that the pressure to keep the euro together becomes too great and it ultimately falls apart.”
While the firm identified the largest threat as being the overexposure of European banks who simply lack the equity to handle a crisis, they’ve had rough luck predicting the financial sector in the not-so-distant past. 2011 halved the fund’s assets, primarily due to a large stake in Bank of America and the fund sold out of their position sometime last quarter. BAC has rallied close to 50% since.