Here’s a conundrum: why should 5-year credit protection on the Republic of Italy trade flat to Bank of America (or another big US bank)? Unlike B of A, Italy can tax a large and productive population. And Italy doesn’t have a portfolio full of bad construction loans.

Nonetheless, here are the numbers (Sept. 5, 2008 to today):

The answer is that the United States (and anything that the US government chooses to ring-fence) are first at the borrowing trough. Anyone else who needs money (and Italy has a roughly Euro 60 billion current account deficit to finance) is at the back of the queue.

That is the perverse logic of the Mother of All Crowdings-Out.

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