A US investment firm, MF Global his filed for bankruptcy. It had $6.3 billion exposure to sovereign debt of countries like Italy and Spain and was downgraded by Moody's last week. Apparently, there is a $ 600 million hole in its accounts books which frightened off a potential buyer. In a curious outcome of globalisation it was an American company which was the first to go bankrupt because of debts of European government. A package has been worked out for Greece but its terms are so onerous that there will be no growth for years and Greece will not be able to pay off its debts making default inevitable. Greek Prime Minister, Papandreou promised a referendum, giving his people a chance to vote on years of poverty, but has withdrawn the offer under pressure from France and Germany and his own party. If Greece defaults the pressure will be on Italy. Already yields on Italian bonds have risen to 6.2% and if they go above 7% Italy will be unable to service its debts. French and German banks will need government help to survive and a world recession will become inevitable. We are being scared by horror stories about such an event but it may not be such a bad thing. Sure, it will be bad for politicians, looting bankers and business robber barons as their bonuses and investment values plummet but ordinary people might benefit from lower inflation and more stringent laws governing capital flows. Some degree of protectionism will be good for employment and local manufacturing. If exports dry up and growth stops there may be serious unrest in China where people have become used to high consumption. Collapse of China will save the world. Let us pray.