In early February, Der Spiegel (a German magazine) broke the story that Greece has been hiding the extent of its debt for years with the aid of U.S. investment banks. In 2001, Goldman was paid $300 million to structure a complex derivative deal that allowed Greece to borrow billions while hiding the true extent of its debt. Without this creative assist, Greece may not have been accepted into the common currency “Eurozone.”I think this sort of behavior should be taken as a given when devising some kind of regulatory framework. These chumps have no shame whatsoever.
Because the deal was structured as a currency swap (a type of derivative) and not as a loan, it was secret, bilateral and off-book. Goldman may have been the only party that knew about it, leading many to speculate how it may have profited from the knowledge.
Last week, the other shoe dropped. The New York Times reported that a company backed by Goldman, JP Morgan Chase and other big banks had set up an index in London that allows investors to gamble on the likelihood of a Greek default. As banks and other players rush into these trades, called credit default swaps, they make the cost of insuring Greek debt rise, making it harder for the country to borrow and bringing it closer to the brink.
Sound familiar? In 2002 the same firm created a similar index that allowed investors to bet on the likelihood of defaults in the subprime bond market. The “savvy” investors at Goldman made a fortune off the collapse of the market. It’s a sure bet that they will do so again if Greece goes down.
Apr 10, 2010
If you read that Matt Taibbi article I linked the other day, you won't be surprised that Goldman Sachs and their cronies also do that kind of thing to whole countries: