Imagine the world's fastest rocket-propelled car, going at max speed, trying to break the land speed record in a desert somewhere. When a car is going that fast, even the smallest pebble in its path can mean utter destruction, when that same pebble would not even register if the car was going slower.

Something like this is happening with the global financial system. That is, Greece derailing the global economy is like a pebble derailing a superfast car.

The Greek debt crisis and the dangers it poses to the Euro, the European Union, and even the global economy, are all indicators that something is very wrong with the financial system. The fact is that Greece's GDP is only about 2% of the EU's GDP (USD $329 billion for Greece vs $14.82 trillion for the EU), and in any sane system, the default of a country with so small a percent of the GDP would have negligible effect on the European or the global economy.

But no, in the world we live in there are a few factors making this into a crisis

• French and German banks have loaned tens of billions of dollars to Greece, so if Greece defaults, these banks would lose a lot of money, putting them at risk, and in turn putting the French, German, and overall European economies at risk.
• These banks seem to also have insured that debt with companies in the UK and the US, and so if Greece defaults, the effect will be felt even in the US.
• Finally, in addition to all the above, people are worried that a Greek default would make it that much harder for the other countries in trouble (Portugal, Spain, Ireland and Italy) to borrow money, which would make their default more likely, and if any of the bigger countries defaults, that would be a disaster for Europe and the global economy.

This all sounds like perfectly valid reasoning about what could unfold if Greece defaults, and within the system that we have, things will likely play out that way. But if we take a step back and think about the fact that the default of a country with such a tiny percentage of the EU's GDP can cause such an existential crisis for the EU, we should come to the realization that our system, the system within which this is all happening, is insane. Society should not be built upon a system that is so unstable that it is like a person who suffers from panic attacks that are too easily triggered.

I think the global financial system is over-optimized. That is, it is tuned so finely (with bonds markets, derivatives markets, CDS's, and other complex financial institutions and products interacting 24 hours a day on a global scale), in order to maximize gains for the various players in the finance world, that it is very unstable, and ready to flip over and crash at the slightest nudge. (*)

It is not unlike the rocket-propelled car mentioned in the beginning of this post: both are finely tuned to maximize their objective, both are going full speed ahead, and both are susceptible to pebbles in the road that can derail them. Slowing down can result in the ability to withstand the pebbles in the road, but the incentives in place mean that slowing down is something that would take a miracle, or a disaster, to convince the people involved to do.
 
We need a system with more stability and resilience, and not just one whose sole focus is on max profits. Profits are good, but extreme profits at the cost of being on the brink of disaster due to relatively minor events are not worth it, and they are not worth the toll this whole situation is taking on us, when we go through near disasters every few years.

I should stress that I'm not proposing to replace capitalism, just the tweaking of laws regarding trading, markets, CDS's, etc, to slow down the process a bit and make it more able to get past pebbles in the road without getting derailed.

(*) Of course this is also due to the fact that the financial system is a big positive feedback loop, which is unstable, dependent on people's sentiments/psychology, which makes it even more unstable, but that is a topic for another discussion.