AP Photo

The leaders of Germany, France, and Greece have all come out now to blame Greece’s (and the euro’s) troubles on speculation in credit-default swaps. Picturesquely, the Greeks say that a CDS is an insurance policy purchased by an arsonist on the house he intends to torch.

Looked at from the investor’s point of view, a CDS is what adds liquidity to the asset that gets created when he lends money to build the house. The house doesn’t get burned down by the guy who lent the money to build it. It burns down when the people who live in it smoke in bed. This whole story is a smoke [sic] screen to keep the Greeks from getting blamed for running budget deficits four times higher than eurozone...