By Greg Peel

The Dow fell 258 points or 2.4%. The S&P fell 2.9% to close at 1099, breaching the earlier August intraday low of 1101. The Nasdaq dropped 3.3%.

The question is: might this really be good news in disguise?

The Australian market was hit hard yesterday on news Greece had failed to pass the budget deficit reduction test required to be eligible for the next tranche of bail-out funds. The Greek government projected a deficit of 8.5% of GDP for 2011 and 6.8% for 2012, below the limits set of 7.6% and 6.5% respectively. Greece has vowed to implement even further austerity measures but has noted that austerity measures to date are sending Greece into recession.

What's wrong with this picture?

What's wrong is the Catch-22 of it all. The more Greece cuts its budget, the greater its economic recession will be. The greater the recession, the less likely the revenue side of the budget will provide enough to gain ground against the expense side. The troika's response? You must cut more. Where does the spiral end? It ends with Greece in default, that's where.

So realistically the troika should give up on its fruitless attempts to prop up Greece. Officials will meet again tonight, but they will not be reaching a decision on whether or not to give Greece its next tranche until October 13. While this seems like yet another delay, it also suggests the troika's intention is to work on shoring up the European banking system first. Greece will simply go down without the bail-out money, implying a "disorderly" default. Better to give Greece the money anyway, buying time to arrange an "orderly" default. That means passing the EFSF through its final parliamentary votes and agreeing on a leverage plan, or Eurotarp.

The first alarm bell, wake-up call, call it what you will has now occurred, with Franco-Belgian financial group Dexia Capital calling an emergency board meeting last night as bankruptcy looms due to Greek debt exposure. The finance ministers of France and Belgium have also called an emergency meeting as a result. Financial markets are in a tail spin. But then perhaps this is exactly what we need. Perhaps a final end to all the dithering and bickering will come through sheer necessity.