How Greek shock waves could hit U.S.

He worries that the IMF may take a loss on the roughly $28 billion it has already loaned to Greece.

"People are happy to put money in if they think they won't lose it," Tchir says. "In this case, the IMF loses money, then everybody gets scared."

ACT III

A full-blown crisis would cross the Atlantic through the dense web of contracts, loans and other financial transactions that tie European banks to those in the United States, experts say.

Blythe, the professor at Brown, believes credit default swaps, the complex financial instruments made infamous by the 2008 financial crisis, would provide the path.

Banks created the swaps to sell as insurance for loans. After lending money to a business or government, investors can turn to a bank and take out protection on the amount they lent. If the borrower runs into trouble and can't pay — say, the government of Spain defaults — the banks that sold the insurance cover the loss.

A $2 billion trading loss that JPMorgan Chase revealed in May, traced to a hedge against the Europe crisis, shows just how easy it is for even the safest and savviest of banks to slip up.

And it doesn't even take a default for a credit default swap to go bad.

If traders think other countries will follow Greece, they'll drive up borrowing rates by selling government bonds, which also pushes up the cost of insuring their debt. That's similar to how your neighborhood insurance agent handles a teenage driver.

In the derivatives market, where credit default swaps are traded, there's a twist. When markets treat Spain like a bad credit risk, those who took out insurance on Spanish debt to protect against a default can force the banks that sold the insurance to prove they can make good on the claim.

To do that, banks cash out something else — U.S. government debt, gold, or anything easy to sell. In normal times, it's no big deal. In a crisis, it can lead to a cascade of selling, spreading trouble from one market to another.

Another problem: It's not clear how much U.S. banks have at risk to Europe through credit default swaps because regulations let banks keep that information a secret.

"You could have American banks up to their necks in CDS liabilities," Blythe says. "We don't even know."

There are other paths the turmoil could take into the United States.

Money market mutual funds, which hold more than $2.5 trillion, have an estimated 15 percent of their investments in Europe. European banks are also large buyers of U.S. mortgage bonds. If they're forced to sell them, mortgage rates could jump, imperiling the U.S. housing market. Frightened banks in Europe and the United States might also pull the credit lines companies depend on for global trade.

So what's the good news? It's hard to find anybody who believes the crisis will get that far.

"The euro itself," Blythe says, "is a bloody doomsday machine."