And they call this God's work? Toying with the financial future of a sovereign nation? That's what it's come to. Banks have been placing bets on whether Greece will default on its debt. This is the same debt that the same banks may have helped Greece hide. And the gambling is now making Greece's situation worse.

From the New York Times:

Echoing the kind of trades that nearly toppled the American International Group, the increasingly popular insurance against the risk of a Greek default is making it harder for Athens to raise the money it needs to pay its bills, according to traders and money managers.

These contracts, known as credit-default swaps, effectively let banks and hedge funds wager on the financial equivalent of a four-alarm fire: a default by a company or, in the case of Greece, an entire country. If Greece reneges on its debts, traders who own these swaps stand to profit.

"It's like buying fire insurance on your neighbor's house -- you create an incentive to burn down the house," said Philip Gisdakis, head of credit strategy at UniCredit in Munich.

The Times says a little-known company created an index last year that allowed traders to bet on whether Greece and other European nations would go bust. You've probably never heard of the Markit Group of London. But guess who funded Markit? Do I even need to say it?

Goldman Sachs. JP Morgan. And about a dozen other banks.

More from the Times:

A result, some traders say, is a vicious circle. As banks and others rush into these swaps, the cost of insuring Greece's debt rises. Alarmed by that bearish signal, bond investors then shun Greek bonds, making it harder for the country to borrow. That, in turn, adds to the anxiety -- and the whole thing starts over again...

"It's the blind leading the blind," said Sylvain R. Raynes, an expert in structured finance at R&R Consulting in New York. "The iTraxx SovX did not create the situation, but it has exacerbated it."

It's true that Greece should take much of the blame for its own financial condition. But
this never-ending creation of derivatives must stop.

Here's Markit's defense:

In a statement, Markit said its index was started to satisfy market demand, and had improved the ability of traders to hedge their risks. The index and similar products, it added, actually make it easier for buyers and sellers to gauge prices for instruments that are traded among players over the counter, rather than on exchanges.

"These indices have helped bring transparency to the sovereign C.D.S. market," Markit said. "Prior to their creation, there was no established benchmark index enabling investors to track the performance of segments of the sovereign C.D.S. market."

I think I've heard this before. Remember Goldman CEO Lloyd Blankfein testifying on the Hill? These are professional, sophisticated investors. They want the exposure. They want it. We're just giving it to them.

At a hearing today on Capitol Hill, Fed Chairman Ben Bernanke responded to a question about the Times story:

"We are looking into a number of questions related to Goldman Sachs and other companies in their derivatives arrangements with Greece," Bernanke said in response to a question for Senate banking Committee Chairman Chris Dodd.

Bernanke said the Securities and Exchange Commission was also "interested" in the issue and added: "Obviously, using these instruments in a way that potentially destabilizes a company or a country is counterproductive."

That's one way to put it. But weapons of mass destruction is probably more accurate.