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Markets swoon, hit by thunderbolt news of a Greek debt referendum (video)

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It’s not the prospect for a Greek default that is bothering investors, says Wells Fargo's Mr. Bryson. Greece owes only about €400 billion. “The question is what happens to Spain and Italy,” he says.

Italy owes about €2 trillion in debt and Spain another €1 trillion, he says. Under a worst-case scenario, the two nations default on their debt, causing another global financial crisis, à la Lehman Brothers in 2008. US-based banks have exposure to about $150 billion in debts to Spain and Italy but $1.5 trillion to other banks in France and Germany, which own trillions of dollars of other European sovereign debt.

“Will the German and French banks collapse?” Bryson asks. “I don’t think that will happen.”

On Tuesday, investors continued to shed bonds issued to the Italian government.

On Monday investors got a Halloween-type preview of potential dangers in the European debt situation when MF Global, a large commodity trading operation run by former New Jersey Gov. Jon Corzine, declared bankruptcy.

MF Global had $6.3 billion in European sovereign debt on its books, as Mr. Corzine, also a former top executive at Goldman Sachs, tried to make MF Global into a company that used its own capital to trade. His big bet: European debt. Complicating the MF situation, regulators are now looking into the possibility that the company commingled customer funds with its money.

“This has spilled over into another minor financial mess,” says Fred Dickson, chief investment strategist at D.A. Davidson & Co. in Lake Oswego, Ore.

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