Goldman Sachs' Desructive Global Hand

June 30, 2105

According to investigative reports that appeared in Der Spiegel, the New York Times, BBC, and Bloomberg News from 2010 through 2012, Blankfein, now Goldman Sachs CEO, Cohn, now President and COO, and Loudiadis, a Managing Director, all played a role in structuring complex derivative deals with Greece which accomplished two things: they allowed Greece to hide the true extent of its debt and they ended up almost doubling the amount of debt Greece owed under the dubious derivative deals.

A February 2012 BBC documentary on the Goldman Sachs deal provides a layman’s view of the dirty underbelly of the deal, calling it “a toxic import” from America that is “hastening” the downfall of Greece.

  Wall Street on Parade

Yes, that Gary Cohn. Trump's choice to head his economic policy team.

March 3, 2010

Goldman Sachs is at the center of the scrutiny. Recent reports show that the firm consulted Greece as far back as 2000 on ways to take on more debt--and then hide it by packaging the liabilities into complex securities that were then counted as assets. It's the same kind of financial trickery that contributed to the massive housing boom and bust in the U.S.

[...]

Goldman used its insider knowledge of Greece's precarious financial situation to bet on a potential default by Greece. Thanks to its complicated financial maneuvers, the super-bank stands to make a killing in the event Greece defaults or needs to be bailed out.
  Socialist Worker

Which is exactly what happened. Goldman played the same game on Greece in 2010 that it played on American investors in 2007. And it made a killing off both, while its victims were financially destroyed. No one at Goldman paid any price for fleecing people in America, so why not play the game on Greece?

Importantly, investors don't actually have to own the asset that they are arranging a [credit] swap to cover. Thus, swaps can become a tool for gambling on defaults occurring--and can even contribute to defaults taking place.

This is the equivalent of everyone else on a street buying fire insurance on one person's house--and then collecting when the house burns down. There's a reason that's illegal in the insurance business--the incentive is for all kinds of people to load up on insurance and then commit arson to collect. But on Wall Street, the same sort of activity applied to financial investments--called naked credit default swaps--is perfectly legal.

In the case of Greece, it seems that the speculators have pushed the country closer to default.

[...]

These practices forced even Federal Reserve Chair Ben Bernanke--hardly a critic of Wall Street--to admit last week, "Using these instruments in a way that intentionally destabilized a company or a country is--is counterproductive."

"Counterproductive." Not immoral? Unethical?

But, counterproductive for whom? Certainly not for the banksters at Goldman Sachs.

The interest rate that Greece would have to pay on bonds that can raise this money is currently being valued at 7 percent--nearly double what Germany has to pay to borrow and 3 percentage points higher than Greece's borrowing costs before this crisis.

This is the result of investors betting in various ways against Greek bonds. The problem has become so vexing that the German government is trying to identify speculators in Greek debt to prevent them from profiting from any bailout.

How about the big one: Goldman Sachs?

A report in the German newspaper FAZ indicates that AIG sold the credit default swaps on Greece. Ultimately, these transactions enabled Greece to borrow 1 billion euros without adding to its official debt--and according to Bloomberg, Goldman was paid $300 million for arranging the deal.

And that was just one deal.

[...]

In late 2009, Goldman came calling again. A team, led by Goldman President Gary Cohn, proposed that Greece push debt from its health care system into the future by creating another set of derivatives. The proposal was rejected. But Goldman wasn't done. It had loaded up on credit default swaps covering a default by Greece.

[...]

"Wall Street, led here by Goldman and AIG, helped to create the debt, then helped to create the hysteria about possible defaults," Marshall Auerback, a professor of economics at the University of Missouri-Kansas City, wrote. "As [credit default swap] prices rise and Greece's credit rating collapses, the interest rate it must pay on bonds rises--fueling a death spiral because it cannot cut spending or raise taxes sufficiently to reduce its deficit."

[...]

As a result of these activities, the Securities and Exchange Commission and Federal Reserve Bank are investigating the role that Goldman played. But given the kid-gloves treatment that Goldman has received--not to mention the extent that it's already been bailed out by the government--it seems highly unlikely that anything will come of these inquiries.

Now, there was a bet that could have paid off handsomely, if anyone had been dumb enough to take it.

Oh, and one more thing for Greece:

In addition, privatizations--also done at the behest of financial firms like Goldman--mean that former sources of government revenue, such as toll roads, are no longer in the state's hands--leaving it even less able to pay its public debt.

July 16, 2015

[Goldman CEO, Lloyd] Blankfein and his Goldman team helped Greece hide the true extent of its debt, and in the process almost doubled it. And just as with the American subprime crisis, and the current plight of many American cities, Wall Street’s predatory lending played an important although little-recognized role.

[...]

 For its services, Goldman received a whopping 600 million euros ($793 million).

[...]

 After the 9/11 attacks, bond yields plunged, resulting in a big loss for Greece because of the formula Goldman had used to compute the country’s debt repayments under the swap. By 2005, Greece owed almost double what it had put into the deal, pushing its off-the-books debt from 2.8 billion euros to 5.1 billion. In 2005, the deal was restructured and that 5.1 billion euros in debt locked in. Perhaps not incidentally, Mario Draghi, now head of the European Central Bank and a major player in the current Greek drama, was then managing director of Goldman’s international division.

[...]

As we know, Wall Street got bailed out by American taxpayers. And in subsequent years, the banks became profitable again and repaid their bailout loans. Bank shares have gone through the roof. Goldman’s were trading at $53 a share in November 2008; they’re now worth over $200. Executives at Goldman and other Wall Street banks have enjoyed huge pay packages and promotions. Blankfein, now Goldman’s CEO, raked in $24 million last year alone.

Meanwhile, the people of Greece struggle to buy medicine and food.

[...]

Meanwhile, cities and states across America have been forced to cut essential services because they’re trapped in similar deals sold to them by Wall Street banks. Many of these deals have involved swaps analogous to the ones Goldman sold the Greek government. And much like the assurances it made to the Greek government, Goldman and other banks assured the municipalities that the swaps would let them borrow more cheaply than if they relied on traditional fixed-rate bonds—while downplaying the risks they faced. Then, as interest rates plunged and the swaps turned out to cost far more, Goldman and the other banks refused to let the municipalities refinance without paying hefty fees to terminate the deals.

[...]

Three years ago, the Detroit Water Department had to pay Goldman and other banks penalties totaling $547 million to terminate costly interest-rate swaps. Forty percent of Detroit’s water bills still go to paying off the penalty. [...] Likewise, the Chicago school system—whose budget is already cut to the bone—must pay over $200 million in termination penalties on a Wall Street deal that had Chicago schools paying $36 million a year in interest-rate swaps.

A deal involving interest-rate swaps that Goldman struck with Oakland, California, more than a decade ago has ended up costing the city about $4 million a year, but Goldman has refused to allow Oakland out of the contract unless it ponies up a $16 million termination fee.

[...]

Borrowers that get into trouble are rarely blameless, of course: They spent too much, and were gullible or stupid enough to buy Goldman’s pitches. Greece brought on its own problems, as did many American homeowners and municipalities.

But in all of these cases, Goldman knew very well what it was doing. It knew more about the real risks and costs of the deals it proposed than those who accepted them.

  The Nation

And it kept that knowledge to itself because that was key to soaking the victims.

This is the swamp from which Trump has pulled at least four creatures for his administration, Steve Mnuchin and Gary Cohn to head Treasury and Finance Policy, respectively.

Draining the Goldman swamp to stock the White House.

...but hey, do what you want...you will anyway.