The wacky world of derivatives certainly has the power to make any financial contagion spread even faster than normal, and recent history has borne that out.

When it comes to the looming tragedy regarding Greek sovereign debt and the implications that would have across the world, the New York Times has raised an interesting question: How much is at stake involving derivatives? How many firms underwrote CDSs on Greek and sister country bonds and would thus be liable for a massive payout in the event of a credit event?

"The looming uncertainties are whether these contracts--which insure against possibilities like a Greek default--are concentrated in the hands of a few companies, and if these companies will be able to pay out billions of dollars to cover losses during a default. If there were a single company standing behind many of these contracts, that company would be akin to the American International Group of the euro crisis."

Recall that AIG insured massive amounts of mortgage debt, ended up on life support and was kept alive by the U.S. government. As of right now, it's unclear how much exposure via derivatives there really is. A true accounting of the derivatives exposure of course would have to go beyond CDSs directly tied to Greek debt and include a wide range of guarantees, insurance and other derivatives. The gross exposure due to CDSs on the five most financially pressed European Union countries--Portugal, Italy, Ireland, Greece and Spain--is about $616 billion. But the total exposure is a question mark.

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