Greek default

The 2008 collapse of Lehman Bros Holdings Inc. (PINK: LEHMQ) ignited a financial meltdown that resulted in widespread bank failures and caused the Dow Jones Industrial Average to lose 18% of its value in just one week.

Yet a Greek default - which (even with a bailout) becomes increasingly likely with each passing day - would actually be much, much worse in many respects.

Sure, it's possible that European Union (EU) taxpayers will soon be dragooned into yet another rescue plan. But that would only delay the inevitable - a catastrophic collapse that will drudge up feelings of panic we haven't witnessed since the global financial crisis hit its apex nearly three years ago.

Here's why.

Dodgy Debt and a Dozing Economy

Greece's debt, at about $430 billion, is less than that of Lehman Brothers, which owed around $600 billion at the time of its bankruptcy. But Greece's finances are much less sound.

Whereas Lehman Brothers participated in the 2003-07 financial bubble with considerable enthusiasm, accumulating vast amounts of the dodgy subprime mortgage paper whose value collapsed in the 2007-08 downturn, Greece's misdeeds date back much further - to its 1981 entry into the EU.

As the poorest member of that group, Greece became eligible for a vast array of inventive subsidies, primarily related to agriculture. However, the frauds the country perpetrated to justify even larger subsidies were even more inventive. And this allowed Greece to bring its living standards close to the EU average, while still being subsidized as if it was a genuinely poor country.

Indeed, Greece produced nothing close to the level of economic output that would be needed to justify its spending and the lifestyle of its people.

The problem for Greece is thus stark: Its people need to suffer a decline in living standards of about 30% to 40%, so that the country's output is sufficient to repay its debts.