The Greek situation reveals the deeper potential for contagion, and the Ponzi scheme that now characterizes the banking system. Europe's banks hold some in $121 billion Greek government bonds that are trading at about 40 cents on the dollar. Europe's leaders, meeting in a summit conference over the weekend, admitted that Greece needs a reduction in its debt load of 50 to 60 percent, and not the 21 percent that was agreed to by the banks back in July.

So Europe's banks will need to take much a bigger hit, and it's not clear that they have the capital to sustain it. But Europe's governments and the European Central Bank are balking at providing this money directly. Instead, they hope to double down with a bailout fund, the $606 billion European Financial Stability Facility that, in effect, borrows against the credit of Europe's soundest economies.

The banks' own shaky condition makes them risk-averse about holding not just Greek sovereign debt, but also the bonds of Portugal, Ireland, Italy and Spain.

The financial industry has coined the acronym PIGS to denote these nations, implying that the crisis is their own fault for living beyond their means. But the true pigs of the story are the banks.

Euro-skeptics are saying, "We told you so" -- the Euro was always a doomed idea. It's true that creating a monetary unit to be used by 17 separate nations with diverse economic strengths and budgetary conditions was a risky proposition. The Euro was a vessel designed for calm seas, not for once-in-a-century storms.

But to solely blame Europe and its institutions is to excuse the source of the storms. That is the political power of the banks to block fundamental reform.