At first glance, a comparison between the Greek default and the collapse of Lehman Brothers seems ridiculous. After all, one is a country and the other was a private financial institution. However, their trajectories share common elements.  

For example, both lied about the extent of their problems. Lehman Brothers did not disclose its exposure to toxic mortgages in the years leading up to its collapse. The Greek government did something similar with regards to its budget deficit. Both had high amounts of debt as well. 

According to its bankruptcy filing, Lehman Brothers had $619 billion in debt when it collapsed. The situation in Greece is even more dire; according to news reports, the country lacks the necessary capital cushion or assets to cover its default costs. Lehman Brothers' fall triggered an economic crisis and, subsequently, a global recession. (For more, see also: Case Study: The Collapse of Lehman Brothers.)

Will Greece's swoon result in similar consequences? The answer is not quite, and there are multiple reasons for this. 

A Financial Crisis and a Default: A Comparison 

First, there is the difference in the scope and breadth in geographical reach of both crises. Lehman Brothers was connected to a global network of financial institutions through a web of collateralized debt obligations (CDO​s) and subprime mortgages. The firm was the 4th largest investment bank in the world's largest economy. It is not surprising then that its collapse had a global effect. 

Lehman's creditors, which included a slew of Japanese investment banks and insurers, were left high and dry. A chain reaction of bailouts and collapse of financial entities ensued. It did not help matters that the bank's creditors were exposed to similar murky debt obligations through their own investment banking units. For example, Citibank, a Lehman creditor, had its own set of problems with exposure to toxic assets and had to be bailed out by the U.S. government. 

The interconnected nature of the global financial system erased boundaries for those affected by Lehman's collapse. For example, shares in Britain's largest mortgage lender, HBOS, fell on the day that Lehman announced bankruptcy. Subsequently, HBOS was taken over by Lloyds, a prominent banking institution. The subsequent confidence crisis was a credibility crisis for the American economy and its ripple effects were felt throughout the world economy.  

Greece's Case

Compare that to Greece, which is part of the European Union—a relatively well-capitalized entity. The European Central Bank, which sets monetary policy for members of the European Union, is the largest creditor to Greece. The country's other creditors include a posse of government agencies and aid institutions, such as the International Monetary Fund

In 2012, two economists at the Peterson Economic Institute calculated that private creditors held about 30–40% of Greece's private debt. Apart from the European Central Bank, the nation's creditor list comprises European banks and international aid agencies such as the International Monetary Fund. 

In fact, an overwhelming majority of the debt was held by Greek banks. Banks in France (a country with a relatively moderate stance on Greek debt) held the next biggest share. International exposure to Greek debt is minimal. In practical terms, this means that the brunt of a Greek collapse would be felt by the EU economy. Unlike the American economy, the size of the Greek economy is also not large enough to cause drastic shocks to the global system. No wonder then that Greece's problems have barely made their presence felt in U.S. stock markets, which is in an extended bull run. (For more, see: How a Greece Crisis Affects the U.S.)  

Second, any comparison between the Greek default and the Lehman Brothers collapse ignores underlying causes in both situations. This is important because the cause of a malaise can lead to its cure. 

Response and Reform

The global financial crisis of 2008 was a direct result of loosening the regulation lever of laws such as the Glass-Steagall Act, which controlled Wall Street's risk-taking. Lax implementation of laws governing access to free credit made the situation worse. To avoid a repeat of the financial recession, economies on both sides of the Atlantic have instituted a number of checks and balances. For example, the U.S. government passed the Dodd-Frank law, an intensive regulatory framework that curbs excesses in Wall Street's system and mandates capital cushion requirements for risk-taking. (See also: Dodd-Frank's Consequences.)

The European response was similar. The EU's Basel III agreement mandates similar capital requirements to its American counterpart. Termed “prudential requirements,” the agreement covers all banks within the EU and has been in force since 2014. 

On the other hand, the Greek economy is a mess due to inherent structural problems. For example, the economy's high government-to-debt ratio and high rates of tax evasion are not recent occurrences. According to reports, it has been baked into the society's economic make-up over a number of years. 

Correcting Greece's economic problems would, therefore, require more than the passage of new laws and regulation. It may end up with a complete dismantling of institutions and agencies, which are part of the current economy. As an example, the country has already instituted a number of pension reforms but they may not be enough. (For more, see also: The Origins of Greece's Debt Crisis.)       

But, there are aspects of both crises, which are similar. The financial crisis had political consequences as people clamored for change.

A failed Greek state could lead to political instability and large-scale immigration from Greece towards prosperous economies in Europe. This could have a destabilizing effect on their economies and, also, lead to local discontent within Greece. According to this story, it could lead to a strengthening of the local fascist party and the political discontent could spill over to countries with significant exposure to Greece, such as France. 

The Bottom Line 

The Greek default and the Lehman Brothers collapse primarily differ in the scope and geographical reach of their impact. Even if a Greek default results in an economic meltdown, its effect would mostly be restricted to the European Union. However, the political consequences of a Greek default may be far more damaging than the corresponding economic ones.