Continuing our series of charts worth a thousand words (first one here), below courtesy of Credit Suisse's William Porter, we present the Euro Area as if it were a giant CDO. It should answer most outstanding questions.
Once upon a time, everyone ignored subprime as it had the same detachment points as the Bank of Greece does now. Fast forward a few years, and we are talking prime mortgage impairments. Which incidentally explains why once the dominos start falling (think CDS trigger), it will get very messy all the way through the Super Seniors.
And as a bonus chart, here is another follow up from Porter, showing that absent hundreds of billions in Eurosystem loans to various PIIGS' banks, the entire system would have already collapsed like a house of cards. The pick up in the last three months speaks volume as to why the European market is on such a "tear." P.S. this is in addition to the LTRO.